<article>UBS Group AG faces a race against the clock in Hong Kong.</article>

UBS Group AG faces a race against the clock in Hong Kong.
The Swiss bank, under threat of a regulatory suspension from acting as a so-called sponsor on initial public offerings in the city, has such a role on roughly an estimated $4.5 billion of deals scheduled to be completed this year, a person with knowledge of the matter said. UBS executives expect the appeal against the ban could take around a year, according to two other people, who asked not to be identified because the information is private.
UBS is free to carry out existing mandates and take new sponsor jobs &#8212; work that carries higher fees and potential for additional revenue &#8212; while it appeals. But the dispute with Hong Kong’s securities regulator could complicate any efforts to reclaim its once-dominant position in the local IPO market.
“Rival banks will find this a perfect opportunity to steal market share,” said Jerry Tse, former chairman of investment banking at China Everbright Securities Co. in Hong Kong.
Mark Panday, a spokesman for UBS, declined to comment.
The pending 18-month suspension from acting as a sponsor, disclosed by UBS last week along with a $15 million fine, stems from its work on a 2009 IPO by China Forestry Holdings Co., people with knowledge of the matter said. That company was halted from trading two years later amid an accounting scandal and later entered liquidation proceedings.
It was one of several Chinese IPOs that blew up on investors around that time, prompting Hong Kong’s securities regulator to start scrutinizing banks.
Hong Kong started the current sponsor system in 2013 in an effort to make underwriters more explicitly accountable for the quality of IPOs. Regulators have warned that firms acting as sponsors can be held criminally liable for the accuracy of share-sale prospectuses.
UBS is far from the only bank in the crosshairs. The Securities and Futures Commission will announce more results of its investigation into 15 firms in the next six months, its enforcement chief said Wednesday, adding that some IPO sponsors have been “extremely reckless.” The regulator, which said it also wants to hold individuals accountable, didn’t name any banks.
While sponsor roles don’t directly carry huge additional fees &#8212; up to $1 million on some deals &#8212; they can still be attractive because a sponsor bank gets a greater say in the due diligence process, according to bankers who spoke on condition of anonymity. Sponsors also exert more influence on deciding which investors get to buy into IPOs, leading to distribution fees and potentially bolstering relationships with key clients, two senior dealmakers said.
In a market where IPO fees as a proportion of the amount raised are less than half the U.S. level, the ability to wring additional revenue from deals can be crucial. And UBS and its Western peers have been eclipsed by Chinese securities firms, which have dominated the Hong Kong league tables in the past two years. UBS was among the top 5 IPO advisers every year from 2006 to 2013; last year it was No. 10.
UBS announced in an internal memo on Thursday that it’s restructuring its capital markets group in Asia, combining the teams that handle equity offerings and debt sales.
The $4.5 billion estimate for deals with UBS as a sponsor, which could change depending on market conditions, suggests bankers expect a bumper year for IPOs. The bank worked on $4.6 billion of IPOs in that role in the past two years combined, data compiled by Bloomberg show. Upcoming deals with UBS as a sponsor include Chinese parenting website Babytree and drug developer Shanghai Henlius Biotech Inc., which together could raise a bit more than $1 billion, people with knowledge of the matter said.
<h3>New Business</h3>
Babytree might consider a public offering when it’s suitable for the company’s business development, it said in an emailed statement. At that time, Babytree will “strictly conform” with regulations on the hiring of IPO sponsors, according to the statement. An external representative for Henlius Biotech’s parent company, Shanghai Fosun Pharmaceutical (Group) Co., said he couldn’t immediately comment.
Drumming up new sponsor mandates could prove difficult. A company that’s filed for an IPO and changes sponsors must submit new documents, potentially setting back the listing process. The possibility that the SFC ban will be upheld could make companies reluctant to give sponsor mandates to UBS, since losing the appeal would mean it would have to resign from such roles.
A ban wouldn’t impact UBS’s ability to act in more junior underwriting roles. Still, a sponsor suspension could make it hard for UBS to get a spot on large deals, particularly those from Chinese state enterprises that tend to be risk-averse, Tse said.
As Chinese securities firms increasingly own the league tables, some of their overseas competitors have tended to focus their efforts on landing sponsor roles. Last year, Morgan Stanley &#8212; the top-ranked foreign firm &#8212; was a sponsor in five of the six IPOs it worked on, Bloomberg-compiled data show. Runner-up Credit Suisse Group AG held that role on all its deals.
UBS acted as sponsor in two of the five IPOs it helped arrange.
Bloomberg

A dispute with Hong Kong’s securities regulator could complicate any efforts to reclaim UBS' once-dominant position in the local IPO market.

UBS has $4.5b deals slated as it stares at Hong Kong sponsor ban

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