Tianhe, Wei Accused of Misconduct

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Hong Kong’s securities regulator filed a complaint Wednesday accusing Tianhe Chemicals Group and its executive director of greatly overstating the company’s revenue in the lead-up to its 2014 initial public stock offering.

The Securities and Futures Comission said it will try to force the lubricant additive supplier and Executive Director and CEO Wei Xuan to reimburse public holders of the company’s stock, which lost value when Tianhe was kicked off the Hong Kong Stock Exchange in June.

Tianhe had not posted any comment about the complaint on its website, and the company did not respond to an email requesting comment.

Tianhe claimed to be Asia’s largest lubricant additive supplier during the lead-up to its stock offering – an event that was supposed to raise capital that the company would use to grow into a rival of the globe’s four main suppliers of lubricant additive packages, Lubrizol, Infineum, Chevron Oronite and Afton Chemical.

According to the SFC’s complaint, though, Tianhe far overstated the size of its business, which also supplies fluorochemicals. The prospectus for the IPO showed Tianhe’s revenues and profits for 2011, 2012 and 2013, and the commission’s filing alleged that the company misreported revenues from three of its main lubricant additive customers, PetroChina, Shanhai High-Lube Additives and Citic International Co. In those three years Tianhe had ¥51,284 in revenue from PetroChina but reported revenue of ¥3.2 million. Tianhe reported ¥364,989 from Shanghai High-Lube but actually had zero, the complaint stated, and from Citic it reported revenue of ¥3.3 million compared to the actual amount of just ¥22,483.

Overall those misrepresentations had the effect of overstating Tianhe’s revenue by 60% for 2011, 50% for 2012 and 53% for 2013, the complaint said.

The SFC said Tianhe probably made the misrepresentations to induce purchases of its stock or to elevate the share price. The IPO, which was conducted in June of 2014, raised HK$3.52 billion (U.S. $454 million), which was conducted in June of 2014.

The complaint did not say how many shares were held by public investors. Management did hold a large stake.

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