Morgan Stanley Queried by Congressman Over China Gold Miner IPO

(Bloomberg) — Morgan Stanley is facing scrutiny from the Republican chairman of the U.S. House China committee over whether the bank did adequate due diligence in financing Zijin Gold International Co.’s $3.7 billion Hong Kong initial public offering in September.

In his Nov. 13 letter to Chief Executive Officer Ted Pick, Rep. John Moolenaar requested more information from Morgan Stanley, including documents and communications related to the transaction, which at the time was the world’s largest offering since May.

The question is how this transaction might help Zijin Mining Group, the parent company of Zijin Gold, which is on a US blacklist for allegedly violating forced labor restrictions in China’s Xinjiang region. In his letter, Moolenaar questioned whether the deal was “structured to allow Zijin Mining to remain the controlling shareholder while consolidating Zijin Mining’s overseas gold assets into a separate entity.”

“Morgan Stanley’s involvement raises potentially serious concerns about the adequacy of due diligence practices in connection with a company that is on the US government’s entity list, has been linked to human rights abuses, and maintains deep ties to the Chinese Communist Party,” Moolenaar wrote in his letter.

A Morgan Stanley representative did not immediately respond to requests for comment.

Morgan Stanley and Citic Securities Co., Contemporary Amperex Technology Co. Ltd.’s $5.3 billion mega-deal, spearheading Hong Kong’s second-biggest IPO this year. Zijin Gold’s Hong Kong shares rose 68% on its first day of trading and have more than doubled since its debut.

Moolenaar said the request for information from Morgan Stanley was part of a broader review by China’s House Select Committee on Wall Street banks’ involvement in public offerings of Chinese companies known to have ties to China’s military or in past records of labor abuses.

“Morgan Stanley’s underwriting of Zijin Gold’s IPO demonstrates the type of trading activity the U.S. government is trying to prevent,” he wrote.

The letter comes after the House Select Committee on the Communist Party of China, led by Moolenaar, submitted a letter to JPMorgan Chase & Co. in July. and Bank of America Corp. for their roles in CATL’s Hong Kong listing.

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