CSRC Simplifies Offshore Listing Rules

On December 20, 2012, the China Securities Regulatory Commission (CSRC) issued the Guidelines for Supervising the Application Documents and Examination Procedures for Overseas Stock Issuance and Listing by Joint Stock Companies (Guidelines).  The Guidelines replaced the CSRC’s original regulations on point, i.e. the Notice on Relevant Issues concerning Enterprise Applications for Overseas Listing (Notice), which were issued in 1999.  The Guidelines streamline the documentary requirements and procedures for a domestic Chinese company to list on an offshore stock exchange.  Unlike the Notice, the Guidelines do not include minimum net asset and profit thresholds or the minimum amount to be raised and also do not address the commercial viability of a proposed listing project.  Instead, the major conditions to listing under the Notice have been removed in the Guidelines in favor of the conditions and rules in force in the listing jurisdiction.  Hence, in theory, more small and medium sized Chinese companies now may qualify for CSRC approval to list abroad.  As, however, the Guidelines require the CSRC to consult with its sister administrative agencies on matters such as industrial policy and foreign investment, if the domestic business of the listing entity is prohibited or restricted under China’s foreign investment regime, the CSRC may not approve the offshore listing and it is still uncertain as to how the CSRC would exercise its discretion in considering applications from those small and medium sized Chinese companies.  Moreover, due to the impact of valuation in offshore capital markets, it is often possible for a listing entity to raise more money by listing on one of China’s domestic A-share markets.  Hence, though the Guidelines provide an improved listing framework for domestic businesses, commercial factors may make it more advantageous for these businesses to raise capital in China. More…