On December 20, 2012, China Securities Regulatory Commission (“CSRC”) issued The Guidelines for Supervising the Application Documents and Examination Procedures for the Overseas Stock Issuance and Listing of Joint Stock Companies (the “Guidelines”) and thereby greatly relaxed regulations regarding overseas direct listing of Chinese companies. The Guidelines came into force on January 1, 2013.
Parts of the Guidelines that attract attention are significant simplification of overseas listing application requirements. The Guidelines deleted all requirements under the Notice on Relevant Issues concerning Enterprises’ Application for Overseas Listing (the “Notice”) established by CSRC in 1999, reduced documents to be submitted to CSRC and simplified review procedures.
According to the Notice, a Chinese company which wants to do overseas direct listing had to fulfill relatively complicated requirements including (i) net asset of 400 million RMB or more, (ii) after-tax profit of 60 million RMB or more, (iii) capital funding of USD 50 million or more, (iv) the purpose for funded capital complying with the industry policy of China, (v) compliance with regulations related to foreign investment utilization policy and investment in the fixed assets and (vi) definite foreign funds source for dividends after the listing, in order to apply for approval of overseas direct listing from CSRC. Due to these strict requirements, overseas direct listing of Chinese companies has been very limited except for mega-sized, state-owned enterprises.
Some parts of the Guidelines remain ambiguous and no precedence exists in actual practices. In addition, for Chinese companies which are mostly limited liability companies, overseas listing requires a conversion of a Company to a joint stock company and such conversion procedures are complicated under Chinese law. Despite such uncertainties, since the Guideline itself is significantly open in comparison to foreign exchange administration and regulations of listing of companies of Chinese government, expansions of overseas direct listing of Chinese companies in the future are anticipated.