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Innovating companies issue new stocks or certificates of depositary receipts within China: valuation threshold of 20 billion

March 30, 2018 19:23
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On March 30, the General Office of the State Council forwarded the notice of the China Securities Regulatory Commission (CSRC) on the implementation of a number of opinions on the piloting of innovative companies' domestic issuance of shares or deposit receipts. The China Securities Regulatory Commission issued a number of opinions on the pilot projects for the issuance of domestic shares or deposit receipts by innovative companies. It requires large-scale red-chip companies that have been listed overseas to have market capitalization of not less than 200 billion yuan.

The State Council issued No. 21 [2018]

The people's governments of provinces, autonomous regions, and municipalities directly under the Central Government, the ministries and commissions of the State Council, and the agencies directly under the State Council:

The "Several Opinions on Launching Pilot Projects for Issuing Domestic Shares or Depositary Receipts within the Domain of Innovative Enterprises" of the China Securities Regulatory Commission has been approved by the State Council and is now forwarded to you. Please carefully implement them.

Office of the State Council

March 22, 2018

  Several Opinions on Launching Pilot Projects for Issuing Domestic Shares or Depositary Receipts within the Innovative Enterprise

Securities Regulatory Commission

In order to further increase the support of the capital market for the implementation of innovation-driven development strategies, and in accordance with the principle of marketization and the rule of law, learn from international experience and carry out trials of domestic companies issuing stocks or deposit receipts for innovative companies, the following opinions are proposed.

First, the guiding ideology

Fully implementing the spirit of the Nineteenth Party Congress, guided by the socialist ideology of Chinese socialism with a new era of Xi Jinping, conscientiously implemented the decision-making and deployment of the Party Central Committee and the State Council, adhered to the principle of stability and progress, and firmly established and implemented new development concepts. Quality development requirements, coordinate the overall layout of the "five in one" and coordinate the promotion of the "four comprehensive" strategic layout, deepen capital market reforms, expand openness, support innovative enterprises in the issuance of securities in the domestic capital market, help our high-tech industries and strategies The development of new and emerging industries will be promoted, and the reform of economic development quality, efficiency and reform will be promoted.

Second, the pilot principle

(a) Serve the national strategy. It is guided by service innovation-driven development, insists on the organic integration of innovation and development, emphasizes both reform and opening-up, helps mass innovation for public entrepreneurship, and promotes economic restructuring and industrial transformation and upgrading.

(b) Adhere to legal compliance. Under the framework of laws and regulations, do a good job of coordinating with related policies, carry out institutional innovations in a moderate and appropriate manner, and ensure that the pilots are in compliance with regulations and are highly efficient and feasible.

(3) Steadily and orderly progress. We will make overall plans, step by step, and explore the pilot issue to solve the problem of domestic companies listed on the domestic market, so as to accumulate experience and create conditions for the further deepening of reform and improvement of the system.

(d) Effectively prevent and control risks. Fully protect the legitimate rights and interests of small and medium investors, handle the relationship between pilots and risk prevention and control, and put prevention and control risks in a more important position. Strengthen supervision, maintain financial market stability, and firmly hold on to the bottom line where systemic risks do not occur.

Third, pilot enterprises

Pilot enterprises should be high-tech industries and strategic emerging industries that are in line with national strategies, have mastered core technologies, and have a high degree of market acceptance. They are Internet, big data, cloud computing, artificial intelligence, software and integrated circuits, high-end equipment manufacturing, and bio-pharmaceuticals. And reached a considerable scale of innovative companies. Among them, large-scale red-chip companies that have been listed overseas have a market value of not less than 200 billion yuan; innovative companies (including red-chip companies and domestic registered companies) that have not been listed overseas have an operating income of no less than 3 billion yuan in the most recent year. The renminbi has a valuation of not less than RMB 20 billion, or its operating income has grown rapidly. It has its own R&D, leading international technology and is in a comparatively dominant position in competition with the industry. The specific standards for pilot enterprises are set by the Securities Regulatory Commission. The term "red chip enterprise" as used in this opinion means an enterprise whose registered place is overseas and whose main business activities are in the territory.

The Securities Regulatory Commission established the Advisory Committee on Technological Innovation Industrialization (hereinafter referred to as the Advisory Committee), giving full play to the role of relevant industry authorities and experts and scholars, and strictly selecting pilot companies. The advisory committee is composed of relevant industry authoritative experts, well-known entrepreneurs, and senior investment experts. According to the pilot enterprise standards, the business model, development strategy, R&D investment, new product output, innovation capability, technical barriers, team competitiveness, and industry are taken into consideration. Factors such as status, social influence, industry development trend, company growth, estimated market value, etc., make initial judgments on whether the applicant companies are included in the pilot scope. The Securities Regulatory Commission used this as an important basis to review whether the applicant company was included in the pilot, and strictly follow the laws and regulations to accept the audit application for the issuance of the pilot company.

IV. Pilot method

Pilot companies may choose to apply for the issuance of stocks or depositary receipts according to the relevant regulations and their actual conditions. The pilot red-chip companies are allowed to issue the depository receipts in the domestic capital market according to procedures; pilot red-chip companies with the conditions for stock issuance and listing may apply for the issuance of stocks in China; domestically registered pilot companies may apply for the issuance of domestic stocks in the domestic market. The depositary receipts referred to in this opinion refer to the securities issued by the depositary and issued on the basis of overseas securities in China, representing the equity of offshore basic securities.

The stocks or depositary receipts issued by the pilot companies in China shall be listed and traded on domestic stock exchanges, and shall be registered, deposited, and settled in China Securities Depository and Clearing Corporation Limited. The funds raised by the pilot enterprises may be remitted abroad in the form of RMB or purchased in foreign currency, and may also be retained for domestic use. The use of funds raised by pilot enterprises and the dividend distribution of depositary receipts shall comply with relevant regulations concerning foreign investment and foreign exchange management in China.

The Securities Regulatory Commission shall, in accordance with laws and regulations such as the Securities Law, approve the pilot red chip companies to issue shares publicly in China in accordance with the current stock issuance approval procedures; in principle, the issuance of a pilot red card enterprise depositary receipts shall be approved by the issuance review committee in accordance with the procedures for the issuance and approval of stocks. Application.

The acts of issuing, listing, and trading of the stocks or depository receipts of the pilot companies in the country are all included in the scope of the existing securities laws. The CSRC implements supervision in accordance with the Securities Law, this opinion and related regulations, and establishes a regulatory cooperation mechanism with the securities and regulatory agencies of the relevant countries or regions where pilot red chip companies are listed, and implements cross-border supervision.

V. Issuance conditions

Pilot companies issuing stocks in China shall comply with the conditions for stock issuance prescribed by laws and regulations. Among them, the pilot red chip companies equity structure, corporate governance, operation specifications and other matters can be applied to overseas law and regulations such as company law, but the arrangement on the protection of investor rights and interests should not be lower than the domestic legal requirements. For pilot companies that have a protocol control structure, the CSRC will distinguish the different situations from the relevant departments and handle them in accordance with the law.

Pilot red chip companies issuing depositary certificates based on stock-based securities in China shall comply with the basic conditions for stock issuance under the Securities Law, and meet the following requirements: First, the ownership structure, corporate governance, and operational specifications are applicable to companies registered overseas. Laws and other laws and regulations stipulate, but the arrangement on the protection of investor rights and interests should not be lower than the domestic legal requirements; Second, there is a difference in voting rights, agreement control structure or similar special arrangements, should be at the time of initial public offering, in the prospectus The public issuance documents are prominently located, and detailed disclosure of relevant information, especially risks, corporate governance and other information, as well as the implementation of various measures to protect the legitimate rights and interests of investors.

Sixth, depositary receipts basic institutional arrangements

The issuance of depositary receipts in China should comply with the following basic institutional arrangements and strictly abide by relevant regulatory rules.

(a) Participants.

The basic securities issued by a basic securities issuer overseas are held by the depositary, and the depositary shall issue a deposit receipt within the territory. The basic securities issuer shall meet the securities law's basic conditions for the issuance of securities such as stocks, participate in the issuance of depositary receipts, perform information disclosure obligations in accordance with the law, and accept the supervision and management of the CSRC and the stock exchange as required.

The depositary shall, in accordance with the agreement of the deposit agreement, exercise the corresponding right of overseas basic securities in accordance with the wishes of the holder of the depositary receipt and deal with the business such as the distribution of deposit receipts and the payment of dividends. The qualifications of the depositary shall comply with the relevant regulations of the Securities and Futures Commission.

Holders of depositary receipts shall enjoy the rights of overseas base securities represented by depositary receipts in accordance with the law, and shall exercise their rights through the depositary in accordance with the deposit agreement.

(b) Depositary agreement.

The issuers, depositaries, and holders of depositary receipts of basic securities shall, through depository agreements, clearly identify the rights and interests of the depositary receipts and the rights and obligations of the parties. Investor holding the depositary receipt becomes the party to the depository agreement and deems it to agree and abide by the deposit agreement agreement. The depositary agreement shall stipulate that the disputes arising from depositary receipts shall be subject to the provisions of Chinese laws and regulations and shall be subject to the jurisdiction of domestic courts.

(3) Depositary receipts basic property.

The basic assets of depositary receipts include offshore basic securities and their derivative interests. The depositary may appoint a financial institution overseas as the custodian. The custodian is responsible for the depository of the depositary receipts basic property and is responsible for handling other business related to hosting. The depositary and the custodian shall be single-proprietors of the basic property of the depositary receipts, effectively separate the depositary receipts' basic property from their own property, manage them separately, keep separate accounts, and shall not classify the depositary receipt’s basic property in their own property. , may not violate the obligation to encroach on the depositary receipts basic property.

(d) Cross-border conversion.

The specific requirements and methods for conversion between depositary receipts and basic securities are stipulated by the Securities Regulatory Commission.

VII. Information Disclosure

The relevant information disclosure obligors such as the pilot enterprises, their controlling shareholders and actual controllers shall disclose information in a true, accurate, complete, timely, and fair manner, and shall not have false records, misleading statements or major omissions. Pilot red chip companies shall, in principle, perform information disclosure obligations in accordance with the current information disclosure system of listed companies. Information released by pilot red-chip companies, their controlling shareholders and actual controllers and other related information disclosure obligors shall be disclosed in Chinese simultaneously in China, and the disclosure content shall be consistent with the content disclosed in overseas markets.

Pilot red chip companies issuing securities in China shall disclose financial information in accordance with laws and regulations such as the Securities Law, and specify related issues such as fiscal year period in the listing arrangements. The financial reporting information of pilot red chip companies that issue securities in China may be prepared in accordance with the Chinese Accounting Standards for Business Enterprises or equivalent accounting standards approved by the Ministry of Finance and the Chinese Accounting Standards for Business Enterprises, and may also be prepared in accordance with international financial reporting standards or US accounting standards. At the same time, it provided adjustment adjustment information according to the Chinese Accounting Standards for Business Enterprises.

VIII. Investor Protection

Pilot enterprises must not have any special arrangements or actions that damage the legitimate rights and interests of domestic investors. In the case of issuance of stocks, the existing investor protection system in the territory shall be implemented; the controlling shareholders, actual controllers, directors, and senior management personnel of the not yet profitable pilot companies may not reduce their holdings of stocks held prior to the listing until the company realizes profits. When issuing a depositary receipt, it shall ensure that the actual interest of the holder of the depositary receipt is equivalent to the equity of the holder of the overseas basic stock, and the depositary shall exercise the right of the overseas investor on the basic stock issuer on behalf of the domestic investor. When the legitimate rights and interests of investors are compromised, the pilot enterprises shall ensure that domestic investors receive compensation equivalent to those of foreign investors.

Nine, legal responsibility

Pilot enterprises and other relevant market entities issuing securities in violation of laws and regulations, failing to disclose information in accordance with relevant regulations, and having false records, misleading statements or major omissions in disclosed information, or having other illegal acts such as insider trading, market manipulation, etc., shall comply with securities laws and other laws. Regulations provide legal liability. If pilot companies and other relevant market entities cause damage to the legitimate rights and interests of investors, they shall be liable for compensation according to law. Investors may directly request them to bear the liability for damages. If the depositary or the custodian violates this opinion and the relevant regulations of the China Securities Regulatory Commission, the China Securities Regulatory Commission may take regulatory measures in accordance with the law and pursue its legal responsibilities.

X. Organization and management

All regions and relevant departments must attach great importance to unifying ideas, raising awareness, and intensifying efforts to ensure that the pilots are conducted in an orderly and lawful manner. The Securities Regulatory Commission shall, in accordance with the Securities Law and this opinion, strengthen coordination and coordination with various regions and relevant departments, steadily promote related work, improve related supporting systems and supervision rules, and strengthen market supervision, investor education, and cross-border supervision and law enforcement cooperation. Seriously investigate and punish violations of law and regulations in accordance with the law, and supervise pilot companies to earnestly fulfill their obligation of information disclosure, and urge intermediaries to be honest, diligent and responsible, and to effectively protect the legitimate rights and interests of investors.

                (Editor: DF142)

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