The policy making of innovative companies including unicorns landing A shares or issuing CDRs (repository certificates) is faster than expected.
On March 30, the General Office of the State Council issued a notice that the “Several Opinions on Pilot Projects for Issuing Domestic Shares or Depositary Receipts within Innovative Enterprises” of the China Securities Regulatory Commission had been approved by the State Council to the people’s governments of various provinces, autonomous regions, and municipalities directly under the Central Government, and ministries and commissions of the State Council. Agency forwarding.
The "Several Opinions" proposes that in accordance with the principle of marketization and legalization, pilot projects for the issuance of domestic shares or depositary receipts by innovative companies should be carried out. 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.
The “Several Opinions” also set out a scale threshold for pilot companies: among them, large-scale red-chip companies that have been listed overseas have a market value of no less than RMB 200 billion; innovative companies (including red chip companies and domestic enterprises) that have not yet been listed overseas Enterprises), operating income of not less than 3 billion yuan in the most recent year and the valuation of not less than 20 billion yuan, or operating income growth, with independent research and development, leading international technology, in the industry competition in a relatively dominant position.
Here are ten highlights of the “Several Opinions” sorted out by reporters from the following categories:
I. What industries are covered by pilot companies?
The scope of the company targeted by the pilot is undoubtedly the focus of the market's greatest concern. The document clearly states: “Pilot companies should be in line with national strategies, master core technologies, and have high market acceptance. They belong to the high-tech industries such as the Internet, big data, cloud computing, artificial intelligence, software and integrated circuits, high-end equipment manufacturing, and biomedical industries. Strategic emerging industries, and to achieve a considerable number of innovative companies."
The track has been well planned, including the Internet, big data, cloud computing, artificial intelligence, software and integrated circuits, high-end equipment manufacturing, biomedicine and other industries.
Obviously, "technology, innovation" is one of the key words. As early as January 20, the supervision meeting held by the China Securities Regulatory Commission in 2018 put forward the need to increase support for new technologies, new industries, new business models, and new models, and accelerate the improvement of capital formation mechanisms that support technological innovation. The specific industry demarcation of this pilot project is also true to the “four new” concept proposed by the China Securities Regulatory Commission.
Second, is there any requirement for the scale of pilot enterprises?
For “a considerable scale”, the document also provides specific data requirements in terms of valuation, market value, and so on.
For large-scale red-chip companies that have been listed overseas, the market value is not less than 200 billion yuan.
For innovative companies that have not been listed overseas, including red-chip companies and domestic registered companies, the operating income for the most recent year is not less than 3 billion yuan, and the valuation is not less than 20 billion yuan, or the operating income is growing rapidly. With independent research and development, leading international technology, it is in a relatively dominant position in the competition with the industry.
The Xinhua News Reporter reported on March 1 that it learned from the investment bankers that the CSRC’s assistance to the new economic enterprises landing in the capital market mainly includes three dimensions. First, large-scale strategic strategic enterprises have been listed overseas; The second is that it has not been listed on the domestic and foreign markets, but it has already built a unicorn enterprise with the VIE structure. Third, it is a “four new” enterprise that has registered in the territory but has not been listed yet has the value of industry development.
Judging from the contents of the documents, the selection of pilot companies does indeed meet these three scopes. The above-mentioned investment bankers told reporters after the publication of the document that the current requirements are more detailed than initially understood, setting a threshold for operating income, not just from the point of view of valuation, which means that if only the high valuations are kept, Companies that do not have real materials do not meet the requirements and reflect the regulatory requirements for the company's true operating capabilities.
It is worth mentioning that the "Several Opinions" did not make specific requirements for the profit indicators of the pilot companies. In the past, one important reason why domestic technology companies went public overseas was that they were losing money when they were in fashion.
Third, who will choose the pilot company?
The actions of the selected pilot companies will be carried out by the two teams one after another. The committees formed by the experts and the Commission will be the gatekeepers.
According to the documents, the SFC will set up an industrialization advisory committee for scientific and technological innovation, give full play to the role of relevant industry authorities and experts and scholars, and strictly select pilot enterprises.
The composition of the advisory committee includes relevant industry authoritative experts, well-known entrepreneurs, and senior investment experts.
The process of selection will take into consideration factors such as business model, development strategy, R&D investment, new product output, innovation capability, technical barriers, team competitiveness, industry status, social impact, industry development trends, business growth, and estimated market value.
From the process point of view, the Advisory Committee made preliminary judgments on whether the applicant companies were included in the scope of the pilot. The CSRC then reviewed and decided whether the applicants were included in the pilot, and strictly followed the laws and regulations to accept the applications for auditing pilot companies.
Fourth, how are these companies listed?
Because the pilot companies are divided into different types, the way of listing is not the same.
The so-called red-chip companies refer to enterprises whose registered locations are overseas and whose main business activities are in the territory. Among red chip companies, if they are already listed overseas, the SFC will allow pilot companies to issue depository receipts on the domestic capital market in accordance with procedures, that is, the recent hot CDR approach.
For those red-chip companies that have not been listed overseas, they may apply for the listing of shares in the domestic market if they have the conditions for the issuance and listing of shares.
The third type of enterprise is a pilot enterprise registered in China and may apply for listing of shares in China.
Fifth, how to release CDR?
Depositary receipts are securities issued by a depositary and issued on the basis of overseas securities in China and represent the equity of offshore securities.
Pilot red chip companies issuing depositary receipts based on stock-based securities in China should meet the basic conditions for stock issuance under the Securities Law and meet the following requirements:
One is that the ownership structure, corporate governance, and operation specifications can be applied to laws and regulations such as the company law on overseas registration. However, the arrangements for the protection of investor rights and interests should not be lower than the domestic legal requirements.
Second, there are differences in voting rights, agreement control structures or similar special arrangements. At the time of initial public offerings, information on the public issuance documents, such as prospectuses, should be fully and fully disclosed, especially relevant information such as risks and corporate governance, as well as legal implementation. Measures to protect the legitimate rights and interests of investors.
VI. Do pilot companies enjoy regulatory benefits?
the answer is negative.
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.
More importantly, pilot companies do not enjoy the “extinction-free gold medal”.
The paper points out that the pilot companies issuing the stocks or depositary receipts within the country also need to go through the issuance review committee to review the application according to law, and subsequent acts of issuance, listing, and trading are all included in the scope of the existing securities laws.
Not only that, the SFC will also conduct supervision in accordance with the Securities Law, this opinion and related regulations, and establish a regulatory cooperation mechanism with cross-border supervision with the securities regulatory agencies of the relevant countries or regions where pilot red chip companies are listed.
Seven, how do the depositary receipts and stocks correspond?
The depositary receipt represents the equity of the overseas base securities. Then, how many shares of the stock are represented by a certificate? How will the investor enjoy the benefits of the shareholders after purchasing the voucher? The document did not give a detailed introduction, but mentioned: "The specific requirements and methods for conversion between depositary receipts and basic securities are stipulated by the Securities and Futures Commission."
Insiders told reporters that this means that the future CSRC will formulate more detailed operations.
Eight, how do the pilot companies approve?
For information disclosure, the China Securities Regulatory Commission requires that relevant information disclosure obligors such as pilot companies, their controlling shareholders, and actual controllers should disclose information in a true, accurate, complete, timely, and fair manner without false records, misleading statements or major omissions.
Especially for pilot red-chip companies, the document stipulates that information disclosed overseas should be disclosed simultaneously in Chinese territory, and the disclosure content should be consistent with the content disclosed in overseas markets.
9. How to protect the rights and interests of investors in unprofitable companies?
Article 8 of the document specifically makes arrangements for investor protection: "Pilot companies must not have any special arrangements or actions that damage the legitimate rights and interests of domestic investors."
Among them, the controlling shareholders, actual controllers, directors, and senior managers of pilot companies that have not yet profited may not reduce their holdings of shares held prior to the listing until they have realized profits. This undoubtedly avoided the situation in which a large number of investors who feared by the investors had "cutting" food by valuation.
In addition, the companies that issue CDRs are registered and listed overseas, which means that investors are also divided into two groups at home and abroad. The document also stipulates that if the legitimate rights and interests of investors are compromised, pilot companies should ensure that domestic investors Get comparable compensation with foreign investors.
X. What laws and regulations should pilot companies comply with?
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.
If a pilot company and other relevant market entities illegally issue securities in violation of laws and regulations and fail to disclose information in accordance with relevant regulations, if the disclosed information contains false records, misleading statements or major omissions, or other illegal activities such as insider trading or market manipulation, they shall comply with the Securities Law. And other laws and regulations provide legal responsibility.
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.