The China Securities Regulatory Commission (CSRC) recently raised the refinancing threshold for listed companies. Now, to obtain the CSRC’s approval to issue securities, a listed company has to show that the cash dividends it paid to shareholders over the last three years were no less than 30 percent of its distributable profits over the same period. Previously, the threshold was 20 percent, and both cash and share dividends counted toward the threshold.

The China Securities Regulatory Commission (CSRC) issued the Decision on Revising Certain Provisions on Cash Dividends by Listed Companies ( the Decision) on October 9, 2008. The Decision went into effect on the same day and supersedes the previous Circular on Certain Issues Concerning the Regulation of Listed Companies’ Conduct (the Circular). The Decision includes provisions that refer to several different CSRC rules and regulations concerning cash dividends by listed companies, such the Administrative Measures for Listed Companies’ Issuance of Securities, the Guidelines on Listed Companies’ Articles of Association, and the provisions on the content and format of listed companies’ disclosures in quarterly, semi-annual and annual reports. Under the Decision, a listed company must adhere to more stringent requirements in terms of specifying its distribution policy for cash dividends and periodically disclosing its implementation results.

The Decision highlights the importance of a listed company’s distribution policy for cash dividends by requiring the company to outline its distribution policy in its articles of association and ensure the continuity and stability of such policy. In addition, a listed company has to disclose the implementation results of its distribution policy in its quarterly, semi-annual and annual reports. In its semi-annual report, a listed company must state whether its board of directors has made a distribution plan for cash dividends, and in its annual report, it must disclose the details of its distribution plan. If a listed company does not distribute cash dividends at year end, it must explain its reasons for doing so and state the use to which it put the undistributed profits in its annual reports. The annual report must also include a chart that lists the amount of cash dividends distributed and the ratio of cash dividends distributed to net profit for the last three years.

By revising the Several Provisions on Strengthening the Protection of the Rights and Interests of Public Shareholders ( the Provisions) and repealing the Circular, the Decision encourages listed companies to distribute cash dividends. Specifically, the revised Provisions allow listed companies to distribute such dividends at half-year end without having to fulfill any preconditions. Previously, under the Circular, a listed company could only distribute cash dividends at half-year end if its semi-annual financial report had been audited. Since this involved an additional cost, listed companies were reluctant to distribute such dividends. Now, however, if a listed company decides to distribute cash dividends at half-year end, it can do so without having its semi-annual financial report audited.

Regulators expect the Decision to foster a sustainable investment environment and reward longterm investors. However, the extent to which a listed company must describe its distribution policy and specific plans for cash dividends and disclose the implementation results of such plans is still unclear. More detailed rules are expected in the future.