Comments Sought on Foreign Strategic Investments into Listed Companies
Oct. 22 – China’s Ministry of Commerce (MOC) released the “Administrative Measures on Strategic Investment into Listed Companies by Foreign Investors (Draft for Comments) (hereinafter referred to as the ‘Measures’)” on September 29, which put forward 31 provisions regulating the foreign strategic investment into listed companies. Detailed information can be found below.
The Measures apply to the activities whereby foreign investors acquire A shares of listed companies by making mid-to-long-term strategic merger and acquisition (M&A) investments into the listed companies.
Moreover, the Measures also apply to the following circumstances:
- Foreign investors obtaining the actual controlling rights of a listed company by engaging in the M&A of shareholders of the listed company;
- Foreign investors increasing their existing shareholding of a listed company through transferring agreements, private placement or tender offers; and
- Foreign investors acquiring A shares by participating in the reorganization of a listed company through a foreign-invested enterprise it has invested in.
However, the Measures do not apply to the following circumstances:
- A-share acquisitions by foreign investors due to the bankruptcy, dissolution and mortgage of the foreign-invested enterprises that hold shares of the listed company; and
- A-share acquisitions by foreign investors through the initial public offering and listing of shares of the joint stock companies it invested in.
To make a strategic investment into a listed company, a foreign investor shall obey the following principles:
- Foreign investors shall acquire A shares of the listed company through transferring agreements, private placement, tender take-over offers, or other means prescribed by State laws and regulations;
- Foreign investors may invest by installment, but shall acquire not less than 10 percent of the outstanding shares of the listed company after the initial investment;
- Foreign investors shall not transfer the A shares obtained from the listed company within three years;
- Foreign investors in certain industries shall comply with relevant provisions on shareholding percentages as prescribed by laws and regulations; and
- Foreign investors shall comply with relevant provisions on State-owned asset management if the strategic investment involves State-owned shareholders.
Moreover, the business scope of the enterprises invested in by the listed company shall be in compliance with relevant industrial policies on foreign investment.
A foreign investor intending to make a strategic investment shall satisfy the following conditions:
- It is a duly-established foreign legal person or other organization that conducts operations according to the law;
- It shall boast financial stability, have good credit standing, and sophisticated management experience;
- Its actual total assets, or that of its parent company, shall be no less than US$100 million, or the actual total assets under its management or the management of its parent company shall be no less than US$500 million;
- It has a sound governance structure, a robust internal control system, and conducts standardized operations; and
- It (including its parent company) has not been subject to any major punishment by domestic and foreign regulatory authorities over the past three years.
Strategic investment into a listed company through private placement shall be conducted according to the procedures below:
- The board of directors of the listed company shall approve the resolution on private placement of new shares and decision to amend the company’s articles of association;
- The general meeting of the listed company shall adopt the above-mentioned resolution and decision;
- The listed company shall sign a contract on private placement with the foreign investor;
- The listed company shall submit relevant application documents to the MOC;
- The listed company shall submit the application documents for private placement to the China Securities Regulatory Commission upon obtaining the approval letter from the MOC; and
- Upon completion of the private placement, the listed company shall collect the approval certificate of foreign-invested enterprises from the MOC and then register changes of business license with the relevant industry and commerce authorities. Moreover, the company shall go through foreign exchange registration with the relevant foreign exchange administration and conduct taxation registration with the competent tax authority.
Strategic investment into a listed company through transferring agreements shall be conducted according to the procedures below:
- The transferor shall enter into a share transferring agreement with the foreign investor;
- The foreign investor shall submit the relevant application documents to the MOC;
- The foreign investor shall, after obtaining approval from the MOC, go through the procedures for share transferring confirmation with the relevant stock exchange, and apply for ownership transferring registration with the relevant securities registration institutions; and
- Upon completion of share transferring, the listed company shall collect the approval certificate of foreign-invested enterprises from the MOC and then register changes of business license with relevant industry and commerce authorities. Moreover, the company shall go through foreign exchange registration with the relevant foreign exchange administration and conduct taxation registration with the competent tax authority.
The Measures are currently seeking public opinions and comments, and such feedback can be submitted via the methods below through November 1, 2013.
- Website: Log on to www.chinalaw.gov.cn, and submit comments through the “Opinion Collecting System” on the left side of the website homepage.
- Website: Log on to www.mofcom.gov.cn, and submit comments through the “Opinion Collecting System.”
- Address: Policy and Regulation Division, Ministry of Commerce, No.2, East Chang’an Road, Beijing, 100713.
Dezan Shira & Associates is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in emerging Asia. Since its establishment in 1992, the firm has grown into one of Asia’s most versatile full-service consultancies with operational offices across China, Hong Kong, India, Singapore and Vietnam as well as liaison offices in Italy and the United States.
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