China revamps offshore IPO rules
by Shu-Ching Jean Chen in Hong Kong
China on Wednesday, Aug. 11, introduced new rules for offshore IPOs by
affiliates of mainland-based listed companies.
The regulations require IPO financial advisers to be retained until the end
of the next fiscal year following a listing.
In a bid to protect domestic Chinese shareholders, the new rules also bar a
China-listed company from spinning off a subsidiary for an offshore IPO if
that unit generates more than half of its profits and 30% of its asset
value.
The announcement by China's securities agency comes as cross-border listings
by Chinese companies have become an increasingly frequent and complex
financial maneuver.
Although the development clarifies a murky area of corporate finance, it
could damper the enthusiasm for offerings, according to Catherine Chen of
Australian law firm Mallesons Stephen Jaques in Hong Kong.
"It might deter some Chinese companies from listing their shares in Hong
Kong," she said.
It's not clear whether the new regulations played a role in an Aug. 4
decision by Shenzhen-listed TCL Corp., China's largest TV maker, to scrap a
$200 million offer for its mobile handset unit TCL Mobile Communication Co.
Ltd.
TCL decided to distribute all TCL Mobile shares to its shareholders instead.
The regulations are the first public statement on offshore IPOs by China's
Securities Regulatory Commission and were disclosed by various state-run
media outlets including Xinhua News Agency and Shanghai Securities News.
The supervisory agency said it wants to safeguard small investors and create
a barrier between mainland-listed companies and their offshore units.
The rules stipulate that funds raised by a China-listed company cannot
finance a subsidiary's offshore IPO and that there be a noncompete clause
between parent and affiliate.
The regulations also require three years of profitability and blocks
companies that have incurred serious violations of Chinese securities laws
during this period.
The regulations likewise forbid the management and board members of the
domestic company from owning more than 10% of the IPO candidate before any
offshore listing.
Source: TheDeal.com
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