WASHINGTON (AP) – U.S. banking giant Morgan Stanley helped a Chinese company, Tianhe Chemicals, sell $654 million in stock in a June public offering. But The Associated Press identified significant discrepancies in publicly accessible financial records and statements Tianhe made to investors.
Such discrepancies highlight Morgan Stanley’s roles shepherding then promoting then defending Tianhe – which one of its investment funds partially owns – before and after the chemical company became a major international stock offering. If Morgan Stanley & Co. LLC and its fellow underwriters, Bank of America Merrill Lynch and UBS AG, failed adequately to vet Tianhe, the banks could be subject to reputational and legal concerns.
The controversy surrounding Tianhe (pronounced TYEN’-huh) carries special significance as China’s financial markets are opening to the world and increasingly becoming part of U.S. stock portfolios largely through pension and mutual funds. Investors unable to conduct their own, on-the-ground research of Chinese companies rely on investment banks like Morgan Stanley to act as gatekeepers, preventing problematic companies from listing.
Tianhe Chemicals Group Ltd. manufactures lubricants and sophisticated chemicals used to fight fires and toughen touchscreens. The AP began its review of the company after allegations arose about the firm from a shadowy investment research group tied to people betting against Tianhe’s stock. The group said the company had vastly overstated the size and profitability of its business.
Tianhe rejected the claims, and Morgan Stanley said it stands “resolutely behind Tiahne’s world-class management team,” but Tianhe’s shares have fallen 39 percent since then.