IPO investors score a victory

In a first for Hong Kong, investors burned in a bungled IPO can get some of their money back.

A milestone court settlement reached in Hong Kong will see investors get most of their money back from a Chinese textile company accused by regulators of exaggerating its earnings in an IPO.

The victory by Hong Kong's market watchdog, the Securities and Futures Commission, is seen as a breakthrough in the ability of SFC to act against offshore companies or investors who are unlikely to return to the city to face prosecution.

SFC said Hontex International Holdings Company based in Fujian province and listed on the Hong Kong Stock Exchange admitted it was reckless in allowing false and misleading information to be included in its IPO prospectus.

Under an agreement reached between SFC and Hontex at Hong Kong's High Court, Hontex will buy back shares held by minority stockholders at HK$2.06 a share, the last price traded before the stock was suspended in late-March 2010.

The company will also buy back a total of US$133 million worth of shares from minority shareholders. This needs to be approved by Hontex shareholders, however.

Analysts said SFC's ability to help investors hinges on the IPO proceeds being in Hong Kong bank accounts.

SFC is also looking to bring in tougher rules for investment banks and corporate finance houses that sponsor IPOs. It is also trying to make them act as better gatekeepers when they bring companies on to the Hong Kong market.