Measures for the Administration of Securities Offering and Underwriting(Mainland China)

Joline Chen

To address the issue where a relatively large amount of capital is frozen during the offering of convertible bonds and exchangeable bonds, the China Securities Regulatory Commission amended part of the provisions of the Measures for the Administration of Securities Offering and Underwriting (the “Measures”) in changing subscription by cash to subscription on credit. This amendment is primarily reflected in the offering procedure, with further improvement in how convertible and exchangeable bonds may be offered. The Measures came into effect on September 18.

The mechanism for the advance payment of the subscription fund is adjusted in this amendment to only pay after the quantity to be sold is confirmed. An investor is no longer required to make the subscription payment when subscribing to a convertible bond or an exchangeable bond and may pay the actual amount issued after the quantity to be received is confirmed.

To prevent online investors from withdrawing the subscription in breach after being allotted a certain amount, the Measures unify the default penalty mechanisms for the initial offering of and the online subscription on credit to convertible bonds and exchangeable bonds, as well as stipulate the corresponding penalties to be imposed based on the combined total number of breaches committed by the online investor.

The Measures provide that an offering may be terminated if the aggregate of the new shares and convertible bonds subscribed to by online and offline investors does not reach 70% of the publicly offered amount. In addition, the Measures specifically provides that if an IPO employs price inquiries, basic pension insurance funds shall enjoy the same priority treatment for allotment as publicly-offered funds and social security funds.