Tianhe tests investor reaction in HK

Lao also pointed out that management's choice to unload old shares during the IPO would spoil the appetite of investors. "It might not be a significant segment, but the image is not positive. That will affect investor confidence," he said.

Lao also expressed caution about the sustainability of Tianhe's "unusually high" profit margins, which he said hadn't been questioned much. As disclosed by its prospectus, Tianhe Chemicals recorded net profit margins as high as 52.2 percent in 2012 and 2013, compared with 28.2 percent in 2011.

For the years 2011 through 2013, the gross profit margins stood at 44.4 percent, 60.6 percent and 60.5 percent, respectively.

"Our gross margin may drop due to factors beyond our control," said Tianhe in its prospectus. "Our gross margin is expected to continue to be affected by a combination of factors ... There is no assurance that we could continue to command the existing level of prices for our existing or new products."

Separately, Tianhe Chemicals disclosed in the prospectus that "an immediate family member" of its chief executive officer and executive director, Wei Xuan, has been an employee in the capital markets division of UBS's Hong Kong branch since October 2013.

The company claimed the family member was "never involved" in the global offering, including "selection of sponsors and underwriters". Instead, they were selected "through a vigorous process" from late 2012 to October 2013, the prospectus said.

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