Issued by the CSRC and effective since 17 September 2007
The Rules aim at clarifying a number of issues in relation to provisions on private placements in the Administration of the Issuance of Securities by Listed Companies Procedures, issued by the CSRC effective since 8 May 2006 (the “Procedures”, featured in Issue 11 of China Insight).
Under the Rules, a listed company cannot perform a private placement and a “material asset restructuring” concurrently. Under current regulations, “material asset restructuring” refers to a major purchase, sale and exchange of assets. Practically speaking, this could mean that listed companies are prevented from issuing shares by way of private placement to a designated investor as consideration for the purchase of substantial assets from this designated investor. Interestingly, the CSRC recently released draft measures governing “material asset restructurings” which will apply to a broader range of transactions than current regulations.
The Rules provide issuers with additional flexibility in determining the price of newly issued shares, which cannot be less than 90 per cent of the average price of the issuer’s shares in the 20 transaction days preceding:
- the board resolution approving the issuance;
- the shareholders’ resolution approving the issuance; or
- the issuance of the new shares.
The Rules reiterate the Procedures’ restriction on the private issuance of new shares to more than 10 designated investors. This provision appears inconsistent with the Securities Law, which defines a “private offer” as the issuance of shares to less than 200 designated investors.