The Securities and Futures Commission (SFC) of Hong Kong has reprimanded and fined Ever-Long Securities Company Limited $3 million for failing to discharge its duties as the sole sponsor in the application of Coastal Corporation Limited in 2016 to list on the Growth Enterprise Market (GEM) of the Stock Exchange of Hong Kong Limited (SEHK).

At the material times, Coastal and its subsidiaries (Coastal Group) were providers of vessel chartering services based in Singapore.

The disciplinary action followed the SFC’s investigation which found that Ever-Long failed to:

• perform proper due diligence on material issues in relation to a business arrangement between Coastal’s subsidiary and a top customer of Coastal Group;
• disclose a known material issue in relation to the top customer in writing to SEHK; and
• ensure the completeness of information in the Application Proof.

In January 2014, Coastal’s subsidiary underwent a change of business model from leasing vessels to one of Coastal’s connected persons (Connected Person A) to leasing them to the top customer, an independent third party. Under this business arrangement, the top customer was able to utilise the vessels to provide bunkering services to its customers, which included another connected person of Coastal (Connected Person B).

This leasing arrangement accounted for over 50% of Coastal Group’s revenue for each of the financial years ended 30 June 2015, 2016 and 2017, which fell within the track record periods of Coastal’s listing applications.

The SFC concluded that Ever-Long’s conduct fell below the standards expected of it as a sponsor and breached the requirements of the Code of Conduct.

In deciding the disciplinary sanction, the SFC took into account all relevant circumstances, including the need to send a strong message to the industry and market that sponsor failures will not be tolerated, as well as Ever-Long’s cooperation with the regulator in resolving its concerns.