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CSRC provides rules on offshore listings of onshore companies


On December 24, 2021, the China Securities Regulatory Commission (“CSRC”) released draft rules and measures on direct and indirect offshore listing of onshore companies for public comment. The deadline for submitting public comments is January 23, 2022.

Applicable to LIFE Companies

The draft rules and measures consist of general rules for the management of offshore listings of onshore companies (“Management Rules”) and implementing measures related to the filing of such offshore listings (“Filing Measures”, as well as the Business Rules, the “Draft Rules”). The draft rules require onshore companies to file certain reports and information with the CSRC and other relevant government authorities before applying for a direct or indirect offshore listing. In addition to direct overseas listing (as defined by the draft rules), which includes traditional IPO and bond issuance, the draft rules also defines indirect overseas listing as offshore public offering by offshore companies that are controlled by onshore companies or beneficial owners through variable interest entity (VIE) arrangements, also known as “red chip companies”. The filing requirements under the draft rules apply to direct and indirect foreign listings.

The draft rules define “indirect offshore listing” to include offshore listings of companies whose principal business activities are conducted in the PRC, even if they are incorporated in other jurisdictions. The determination of whether a company’s principal business activities are conducted in the PRC will be primarily based on facts, including consideration of factors such as turnover, gross profit, l total assets and net assets of the PRC domestic entities in the issuer group are more than 50% of those for the entire issuer group, the citizenship and residency of the senior management of the issuer and the location of the issuer’s registered office.

Lists and events that would require a deposit

Listings that would require filing under the proposed rules include initial public offering, issuance of publicly traded securities (including, but not limited to, refinancing), SPAC and De-SPAC transactions, full circulation transactions (applicable to offerings on the Hong Kong Stock Exchange), etc. Some are concerned that providing documentation for some of these transactions will be inconvenient and that it will be very difficult to complete these documents within the prescribed time limits, and it remains to be seen whether the rules enacted in the future will address these concerns. In addition to the initial filing, in the event that certain material changes listed in the filing measures (for example, a material change in the issuer’s principal business, equity structure or listing plan) occur After the completion of the filing, but before the actual listing takes place, the issuer must prepare updated filing materials. If certain material events listed in the filing actions (for example, change of control, material non-compliance with laws, government investigations, voluntary or compulsory termination of listing) occur after listing, the issuer has an obligation to report the details of these events. events at the CSRC in accordance with archival measures.

Prohibited Review and Ads

Under the proposed rules, the CSRC will not undertake a substantive review to determine whether that issuer has met the applicable listing requirements. Instead, the draft rules set out the bottom line and negative list for offshore listings. Specifically, the draft rules prohibit overseas listings that would fall into the following broad categories: listings that are prohibited by other applicable laws and regulations of the PRC, or that may endanger national security, such as than determined by the State Council, or involve material disputes relating to the ownership of equity, major assets or core technology of the issuer, or which involve violations of laws or criminal activities, etc. the information and documents filed, and also require intermediaries involved in the registration process to ensure the accuracy and completeness of the documents produced or issued by them.

It should also be noted that the management rules have linked the filing of the offshore list to the security review for cross-border transfer of personal information and important data under the laws and regulations of the PRC relating to cybersecurity and to the protection of privacy. Official regulations relevant to such a security review have not been issued, but the management rules have specified that if, on the basis of the information filed, such a security review should be carried out, then the authorities concerned should ensure that that this security review takes place.

Copyright © 2022, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume XII, Number 14