April 2023
Yanting Pei and Teresa Huang
On February 17, 2023, the China Securities Regulatory Commission (“CSRC”) promulgated the Trial Measures for the Administration of Overseas Securities Offering and Listing by Domestic Enterprises and five supporting guidelines (hereinafter referred to as “New Rules”), which came into effect on March 31, 2023.
The New Rules unify the regulation of direct and indirect overseas securities offering and listing by domestic enterprises, and clarify in the form of negative list the circumstances under which domestic enterprises shall be prohibited from overseas offering and listing, to achieve the effective connection with security market self-regulations. The New Rules consist of six chapters with 35 articles, mainly including the regulatory scope, filing requirements, supervision and administration and legal liability for overseas offering and listing, which more clearly defines the basic system for current overseas offering and listing by domestic enterprises.
1. Regulatory Scope
According to the New Rules, domestic enterprises are not only required to file for direct overseas offering and listing, but also for indirect overseas offering and listing.
The so-called direct overseas offering and listing refers to such overseas offering and listing by a joint stock limited company incorporated domestically, while the indirect overseas offering and listing refers to the overseas offering and listing by an enterprise in the name of an overseas incorporated entity, whereas the enterprise’s major business operations are located domestically and such offering and listing are based on the underlying equity, assets, earnings or other similar rights of a domestic enterprise. An overseas offering made by an issuer incorporated overseas that meets both the following conditions shall be considered as an indirect offering:
(1) 50% or more of the issuer’s operating revenue, total profit, total assets or net assets as documented in its audited consolidated financial statements for the most recent fiscal year is accounted for by domestic enterprises;
(2) the main parts of the issuer’s business activities are carried out in the Chinese Mainland, or its main places of business are located in the Chinese Mainland, or the senior manages in charge of its operation and management are mostly Chinese citizens or domiciled in the Chinese Mainland.
In addition, according to the New Rules, no overseas offering and listing may be made under any of the following circumstance:
(1) where such securities offering and listing is explicitly prohibited by laws, administrative regulations or relevant state rules;
(2) where the intended overseas securities offering and listing may endanger national security as reviewed and determined by competent authorities under the State Council;
(3) where the domestic enterprise intending to make the securities offering and listing, or its controlling shareholder or actual controller have committed crimes such as corruption, bribery, embezzlement, misappropriation of property or undermining the order of the socialist market economy during the latest three years;
(4) where the domestic enterprise intending to make the securities offering and listing is suspected of crimes or major violations of the laws and regulations and is under investigation according to law, and no conclusion has yet been made thereof;
(5) where there are material ownership disputes over equity held by the domestic enterprise’s controlling shareholder or by other shareholders that are controlled by the controlling shareholder and/or actual controller.
2. Circumstances Subject to Filing
According to the New Rules, an issuer shall file with the CSRC under any of the following circumstances:
(1) an initial public offering or listing in an overseas market;
(2) subsequent securities offerings of an issuer in the same overseas market where it has previously offered and listed securities;
(3) subsequent securities offerings and listings of an issuer in other overseas markets than where it has previously offered and listed securities;
(4) a domestic enterprise that seeks to directly or indirectly list its assets in overseas markets through single or multiple acquisitions, share swaps, transfers of shares or other means.
Under the second circumstance, a domestic enterprise’s subsequent offerings of convertible bonds, exchangeable bonds, preferred shares in the same overseas market shall file with the CSRC, but excluding the securities offerings for the implementation of equity incentives, conversion of surplus into capital, distribution of stock dividends, and share split.
In addition, for a domestic enterprise that has previously offered and listed securities in an overseas market, if it intends to change its listing status (such as from secondary listing to dual primary listing), or transfer its listing segment without issuing shares, no filing is required, but a report on the situation shall be submitted within three working days after the occurrence and public disclosure of the event.
3. Supervision and Administration
In terms of supervision and administration, the New Rules place more emphasis on post-event supervision, therefore, enterprises should also fulfill the corresponding reporting obligations during or after the overseas securities offering and listing process. Especially, after the occurrence of the following events, enterprises should report them in a timely manner in accordance with the New Rules:
(1) change of control or material changes in its shareholding structure;
(2) material changes in its main business or business license qualification;
(3) material adjustments of the offering and listing plan;
(4) investigations or sanctions imposed by overseas securities regulatory authorities or other relevant competent authorities;
(5) change of listing status or transfer of listing segment;
(6) voluntary or mandatory delisting.
In addition, the CSRC and competent authorities under the State Council will also carry out regulatory inspections or investigations of domestic enterprises, securities companies and securities service institutions, and collaborate with overseas securities regulatory authorities through cross-border regulatory cooperation mechanisms when necessary.
4. Legal Liability
According to the New Rules, in any of the following cases, the domestic enterprise, its controlling shareholder, its actual controller, the relevant securities company, securities service institution and each directly liable person-in-charge and other directly liable persons may face legal liability such as warnings, fines, being prohibited from entering into the securities market, etc., and any such violation that constitutes a crime shall also be investigated for criminal liability in accordance with the law:
(1) the domestic enterprise offers and lists securities in an overseas market if it is not allowed to offer and list securities abroad;
(2) the domestic enterprise fails to fulfill the filing procedures as required;
(3) the filing documents submitted by the domestic enterprise contains misrepresentation, misleading statement or material omission.
The New Rules also take into account the needs of enterprises in the transitional period. If an application for indirect overseas offering and listing has been approved by the overseas regulator or the overseas stock exchange before the implementation date of the Measures (e.g. the hearing has been passed in the Hong Kong market, or the registration has taken effect in the U.S. market, etc.), the issuer is not required to fulfill the offering and listing regulatory procedures of the overseas regulator or overseas stock exchange (e.g. re-hearing in the Hong Kong market, etc.) again, and the overseas offering and listing will be completed before September 30, 2023, the immediate filing is not required. Other enterprises in the process of application may refer to the Notice of the CSRC on the Administrative Arrangements for the Filing of Overseas Offerings and Listings by Domestic Enterprises to arrange the progress and should complete the filing before the overseas offering and listing.
In addition, with the implementation of the New Rules, the Special Provisions of the State Council Concerning the Floatation and Listing Abroad of Stocks by Joint Stock Limited Companies (promulgated by Order No. 160 of the State Council of the People’s Republic of China on August 4, 1994) and the Circular of the State Council Concerning Further Strengthening the Administration of Share Issuance and Listing Overseas (Guo Fa [1997] No. 21) have also been repealed at the same time.
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