Bank of America Securities downgraded CSC FINANCIAL CO.,LTD 's (06066) rating to "neutral" from "buy" because of more challenges to its IPO business and return on equity outlook, Zhitong Financial APP learned. The target price was lowered to HK $7.40 as a result of an 18 per cent reduction in earnings per share for fiscal year 2023-24. The bank said the downgrade was due to estimates that its share of total underwriting revenue would fall to 20 per cent of revenue in fiscal year 2023-24, compared with 25 per cent in fiscal year 2021, assuming a three-month suspension of the company's IPO licence. The bank continues to see the group as a long-term beneficiary of ongoing capital market reforms on the mainland.

The report quoted the company's announcement as saying that the company, Amethyst Storage (688086.SH), which serves as the exclusive sponsor and lead underwriter, was filed for investigation by the Securities and Exchange Commission. The CSRC may then investigate CSC FINANCIAL CO.,LTD. Although the amethyst storage IPO is a small part of the bank's sponsor history, the case is considered to be the first fraud in a registered IPO in China, and regulators are likely to impose heavy penalties on listed companies and their sponsors. Based on past cases, the bank believes that the IPO sponsor licence could be suspended for three to six months, while the more than 60 IPO currently being prepared by the group may be extended or some sponsors may be rehired.