Its internal controls and governance
The pitch to investors described a company on the verge of spectacular success: a Chinese firm making sophisticated, high-end chemicals used to fight fires, stain-proof fabrics and toughen touchscreens. Tianhe Chemicals Group Ltd. boasted rock-bottom labor costs, unique manufacturing techniques and net profit margins triple those of competitors such as DuPont Co. and 3M Co.
Tianhe (pronounced TYEN-huh) also had an impressive backer: investment banking giant Morgan Stanley & Co. LLC. In 2012, after spending millions of dollars vetting the firm, a Morgan Stanley investment arm paid $300 million for a stake in Tianhe and a seat on its board.
To investors, the company touted what it described as its "close partnership" with the American bank's private equity team. It credited the bank with helping it strengthen its internal controls and governance. When Tianhe went public in June, Morgan Stanley was one of three lead banks that helped it raise $654 million from investors, making the deal one of the largest Hong Kong IPOs this year.
Tianhe's stock has since lost much of its luster. A mysterious group, allied with speculators betting against Tianhe's stock, alleged that the company had exaggerated the value of its business. Then Hong Kong regulators froze the $7.9 billion company's stock for more than a month. Since the allegations were made, Tianhe has lost 39 percent of its value.