(Yicai) Oct. 16 -- After Hong Kong's Securities and Futures Commission suspended ChaPanda shares from trading over artificial manipulation concerns surrounding its initial public offering, the Chinese new-style tea brand said it is fully cooperating with the relevant investigation.

Production and operations remain normal, Chengdu-based ChaPanda announced late on Oct. 14. Regulators have not disclosed specific details on the investigation's progress or findings yet, nor have they clarified whether anyone inside the company was involved.

The securities watchdog suspended ChaPanda's shares on Oct. 13, just five days after the firm announced a share incentive plan, citing concerns that the IPO may have been artificially manipulated to create a false impression of demand because part of the proceeds may have been diverted away from the company under undisclosed agreements with a suspicious group.

In plain terms, participating investors allegedly paid to subscribe for ChaPanda shares to create the illusion of "strong IPO demand," while the company secretly channeled its IPO proceeds back to the main subscribing investors after listing.

Artificially manipulating an IPO and fabricating fake subscription enthusiasm would lead ordinary investors to subscribe for or trade shares at unreasonable valuations, Shen Meng, executive director of Chanson Capital, told Yicai. If found to be fraudulent, ChaPanda could face criminal prosecution and civil lawsuits from Hong Kong investors, in addition to possible fines and delisting, bringing enormous risks, Shen added.

ChaPanda's trading suspension has little to do with its business operations and more with regulators investigating whether its IPO was artificially manipulated, industry insiders pointed out. In the first half of this year, the company's net profit rose 3.5 percent to CNY345 million (USD51.6 million) from a year ago, while its revenue jumped 6.2 percent to CNY2.7 billion (USD403.5 million).

ChaPanda's IPO in April 2024 was not exactly "hot." It initially planned to issue about 148 million shares, with no cornerstone investors introduced, allocating 10 percent to the Hong Kong public offering for retail investors and the rest to international institutional placement. However, the former was ultimately subscribed only 0.5 times, compared with 195 times for peer Guming Holdings and 3,617 times for Auntea Jenny. ChaPanda raised HKD2.6 billion (USD331.3 million) in its global offering.

In addition, ChaPanda had compelling reasons for going public.

In 2023, ChaPanda completed two rounds of pre-IPO capital increases, raising CNY970 million in institutional investment, using the funds for daily operations and the supply chain, with about 64 percent deployed before the IPO. However, investors held redemption rights, giving them the right to demand a share buyback if ChaPanda ultimately failed to go public, placing enormous repurchase pressure on the company.

Editor: Martin Kadiev