HONG KONGâ€"JPMorgan Chase has removed itself from a potential $1 billion share sale by a Chinese chemical company as a United States investigation into hiring practices in China by it and other Wall Street banks steps up, people with direct knowledge of the matter said Tuesday.
JPMorgan previously employed the daughter of the chairman of the privately held Chinese company, Tianhe Chemicals Group, as a junior banker in Hong Kong, and recently bowed out as a potential underwriter of the company’s planned Hong Kong initial public offering , the people said, declining to be named because of the sensitivity of the matter.
It is at least the second Chinese I.P.O. that the bank has disassociated itself from since The New York Times disclosed the United States investigation in August. The Securities and Exchange Commission and federal prosecutors in Brooklyn have have been investigating whether JPMorgan’s ‘‘Sons and Daughters’’ program of hiring the children of executives at state-owned Chinese companies was directly linked to winning business from those companies. Six other banks have also come under scrutiny over their hiring practices. Neither JPMorgan nor any of the other banks have been accused of wrongdoing.
In November, JPMorgan withdrew as one of the underwriters of the state-owned China Everbright Bank’s share sale. JPMorgan had previously employed the son of Tang Shuangning, China Everbright Group’s chairman, a relationship that U.S. investigators have been examining. Everbright Bank went on to raise $3 billion in December, in Hong Kong’s biggest I.P.O. of 2013.
Two of the people briefed on the matter said the decision to remove itself from an underwriting role on Tianhe’s planned I.P.O. was made on JPMorgan’s own initiative. “This really starts and stops at JPMorgan’s compliance department in New York battening down the hatches under all this regulatory scrutiny,†one of the people briefed on the Tianhe deal said.
Unlike Everbright Bank, Tianhe is not a state-owned company. As a result it is unlikely to be central to the U.S. investigation, which is based on the Foreign Corrupt Practices Act, a 1977 law that makes it illegal for United States companies to exchange “anything of value†with foreign officials to win “an improper advantage†in obtaining business.
Hong Kong authorities investigating the practices, however, may be interested in the ties to a private company.
International Financing Review, or IFR, reported JPMorgan’s exit from the potential Tianhe deal on Monday.
Joyce Wei, the daughter of Tianhe’s chairman, Wei Qi, was licensed as a financial professional at JPMorgan’s Hong Kong unit from Jan. 2012 until Aug. 2013, according to a database maintained by Hong Kong’s securities regulator.
Efforts to contact Joyce Wei were unsuccessful, and Tianhe did not immediately respond to emails sent after normal working hours seeking comment.
Since October she has been working at UBS in Hong Kong, according to the database. She is employed in the Swiss bank’s equities and capital markets group but is not involved in the planned Tianhe I.P.O., according to one person with direct knowledge of with the matter.
Morgan Stanley, UBS and Bank of America Merrill Lynch are currently leading Tianhe’s plans to raise $1 billion or more in a Hong Kong share sale that could take place by June, the people said, but they haven’t been formally hired to run the deal yet. Morgan Stanley’s private equity unit made a $300 million investment in te Chinese chemical firm in 2012.
JPMorgan had been one of several Wall Street banks that worked with Tianhe in 2011 on plans for a dual listing in London and Hong Kong, but those plans were shelved in the wake of the European debt crisis, one of the people said.
