Reed Smith Client Alerts

On 17 February 2023, the China Securities Regulatory Commission (the CSRC) issued the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies (《境内企业境外发行证券和上市管理试行办法》) (the Trial Measures) and five supporting guidelines (the New Listing Regulations), which will come into effect on 31 March 2023. In an effort to reform the regulatory regime for offshore listings, the New Listing Regulations establish a filing-based administration system for overseas listings of domestic enterprises, enhancing support for domestic companies that wish to go public overseas.

The Trial Measures specify express requirements for overseas listings of domestic enterprises. In particular:

1. Domestic enterprises may seek to list in Hong Kong subject to complying with new requirements under the Trial Measures. Typically the domestic enterprise will have to file for registration with the CSRC within three days after submission of its initial public offering (the IPO) listing application in Hong Kong. Where a domestic enterprise is already listed in Hong Kong and is looking to list its shares on the secondary market (e.g. through placement of shares or issue of convertible bonds), the listed company will have to file for registration within three days after such securities commence dealing in the Hong Kong Stock Exchange. Issue of listed shares under scrip dividend or share incentives schemes are exempted from such filing requirements.

There may be circumstances under the Trial Measures which require prior approval before a listing application is made in Hong Kong, including where national and other regulatory security considerations are involved.

2. Domestic enterprises shall not offer and list securities in Hong Kong under any of the following circumstances:

a) where such securities offering and listing is explicitly prohibited by law or regulation;

b) where the intended securities offering and listing may endanger national security;

c) where the domestic company intending to make the securities offering and listing, or its controlling shareholder and de facto controller, have committed criminal offences, such as corruption, bribery, embezzlement, misappropriation of property or undermining the order of the socialist market economy, within the last three years;

d) where the domestic company intending to make the securities offering and listing is suspected of committing crimes or major violations of laws and regulations, and is under investigation according to law, and no conclusion has yet been made thereof; and

e) where there are material ownership disputes over equity held by the domestic company’s controlling shareholder or by other shareholders that are controlled by the controlling shareholder and/or de facto controller.

If any such domestic enterprises which are not allowed to go public overseas initiate the listing process, penalties could be imposed on the enterprises, their controlling shareholders and their de facto controllers, as well as any securities companies and securities service providers involved in the process.

3. The regulatory requirements for listing of red-chip companies have been clarified. The “substance over form” approach under the Trial Measures means that indirect listing in the overseas of domestic companies are caught. Indirect listing as such is codified to mean: (a) more than 50% of any of the financial indicators of the domestic companies pursuant to its audited consolidated financial statements for the most recent financial year is accounted for by the domestic company; and (b) the business operations are primarily located in Mainland China, or the majority of senior management members are Chinese citizens or domiciled in Mainland China.

4. Overseas listings of companies with a variable interest entity (VIE) structure are subject to regulation. Reasons and specific arrangements for the adoption of a VIE structure, risks that may arise and risk mitigation measures shall be stated in the report filed in respect of overseas listings.