China Life Insurance Co Ltd, which last year's sold the world's largest IPO at $3.5 billion, said on Wednesday that state auditors uncovered accounting irregularities at its predecessor company, a development that could deflate investors' China mania.
The company, whose shares at one point almost doubled from their IPO price, also faced a slew of research reports saying it was overpriced, including an unusual "sell" rating from one of the banks that helped sell its IPO, Citigroup. The bank set a price target about 17 percent below the current price.
"Something has to pop the China bubble, and this kind of event is certainly a contributory factor," said investor activist David Webb, a board member of bourse operator Hong Kong Exchanges and Clearing who urged the exchange to suspend the China Life shares.
Chinese companies, including state-run China Construction Bank, are planning IPOs this year that could be worth some $15 billion.
China's state audit office said on its Web site that it had found about 5.4 billion yuan (US$652 million) worth of irregularities involving China Life's predecessor company.