Event: on December 24, the CSRC publicly solicited opinions on the relevant systems for overseas listing of enterprises.
General overview: overseas listing uniformly implements the filing system, defines prohibited situations, and strengthens regulatory coordination and cooperation
At present, the legal basis for regulating the overseas listing of enterprises is mainly the special provisions issued in 1994. Although some local amendments and improvements have been made, it has generally lagged behind the market practice. The newly revised Securities Law in December 2019 specifies that direct and indirect overseas listing shall comply with the relevant provisions of the State Council. Adhering to the idea of expanding opening-up, supporting enterprises to make standardized use of two market resources and non retroactive laws, the CSRC plans to fully incorporate overseas listing activities into Supervision, implement unified filing management for direct and indirect listing of enterprises, clarify the filing subject, process and non overseas listing, strengthen cross-departmental regulatory coordination and cross-border regulatory cooperation, and provide clear and transparent services for enterprises A more stable and predictable institutional environment to reduce the burden on enterprises.
Core content:
1) The identification of overseas indirect issuance and listing of domestic enterprises is more substantive than formal. Enterprises that meet the conditions such as the proportion of income and profit of domestic assets, the composition of senior executives and the place of business operation shall issue securities abroad or list securities abroad in the name of overseas enterprises based on the equity, assets, income or other similar rights and interests of domestic enterprises.
2) Multiple types of listing and trading activities, refinancing, major events and other packages shall be included in the supervision. Domestic enterprises that issue stocks, depositary receipts, convertible bonds or other securities with the nature of equity abroad, or list and trade their securities abroad, shall be subject to supervision. For IPO, second or dual listing, backdoor listing and spac listing, the filing procedures shall be performed in accordance with the requirements of initial public offering. At the same time, it also defines the filing / reporting requirements for refinancing, full circulation, major events and overseas securities companies after overseas listing.
3) It is clear that it is not allowed to be listed abroad, and the importance of safety review is highlighted: it is clear that it is not allowed to be listed abroad for four types of situations, such as laws and regulations explicitly prohibit listing and financing, endanger national security, major ownership disputes and illegal and criminal acts. Domestic enterprises listed overseas shall strictly abide by national security laws and regulations such as foreign investment, network security and data security, and perform security review procedures according to law.
In July The measures for network security review (Revised Draft for comments) and the regulations on network data security management (Draft for comments) issued in November stipulate that “if a data processor processing more than one million personal information is listed abroad; if a data processor is listed in Hong Kong and affects or may affect national security, it must apply for network security review” 。 The draft for comments on the new regulations of the CSRC also specifies the filing materials submitted for the initial public offering, including regulatory opinions, filing or approval documents issued by the competent authorities, and safety assessment and review opinions issued by relevant departments (if applicable).
4) Smooth transition and enhance institutional inclusiveness. The filing management will start from the increment, and take into account the convenient and efficient refinancing characteristics of the overseas market, and make differentiated institutional arrangements for the filing time and material requirements. In addition, the restrictions on the issuance of domestic specific objects under the circumstances of equity incentive for overseas direct issuance and listing have been relaxed.
5) Strengthen domestic regulatory cooperation, promote cross-border regulatory cooperation, and legal and compliant vie structure enterprises can be listed abroad after filing. The CSRC will establish a regulatory cooperation mechanism with the competent authorities of relevant industries and fields in China, strengthen policy convergence, information sharing and regulatory coordination, and reduce the regulatory burden on enterprises. The CSRC will also strengthen cross-border regulatory cooperation: establish a filing information notification mechanism with overseas regulators, strengthen cross-border law enforcement cooperation and actively promote cross-border audit and regulatory cooperation. At the same time, it stated that legal and compliant vie structure enterprises can be listed abroad after filing. The market worries will be alleviated by making up for the shortcomings of the system, fully implementing the filing management and clarifying the market expectations.
On the whole, the draft of the new regulations releases a firm attitude of adhering to opening to the outside world, defines market expectations and improves policy predictability. On the one hand, define the main body and listing activities, fully incorporate overseas listing activities into the supervision, and make up for regulatory defects and institutional weaknesses; On the other hand, the overseas listing will be changed from administrative license to filing management, without reviewing whether the enterprise meets the conditions for issuance and listing in the place of overseas listing, so as to strengthen cross departmental information sharing and policy convergence and reduce the burden on enterprises. Recently, the SEC of the United States announced the detailed rules for the implementation of the foreign company Accountability Act. The CSRC will actively promote cross-border regulatory cooperation and policy communication, and make it clear that legal and compliant vie structure enterprises can be listed abroad after filing. It is expected that the short-term worries in the overseas market will be alleviated.
Follow up attention: progress in communication between China and the United States on audit and supervision, system connection between network security review and overseas listing filing, etc.
Follow up suggestions: 1) make separate arrangements for the filing of stock enterprises; 2) Connection between network security review and overseas listing filing system; 3) Whether the filing management requirements for equity incentive plans such as options and restricted stocks will be further clarified. 4) Progress in communication between China and the United States on audit supervision. In addition, vie structure is one of the key concerns of the market for Chinese enterprises listed overseas. Previously, the CSRC has responded that “individual media reports that Chinese regulators will prohibit vie structured enterprises from listing abroad and promote the delisting of Chinese enterprises listed in the United States” are completely misreading. This time, the CSRC stated that legal and compliant vie structure enterprises can be listed abroad after filing. We believe that it has certain positive significance in practice. In the follow-up, we can pay attention to whether the requirements related to vie structure enterprises will be further clarified in the special management of foreign investment access, network integrity / data security management and other institutional measures.
Investment suggestions:
We believe that the CSRC adheres to the firm attitude of opening to the outside world. Clarify the scope of filing management and negative list, provide a clear, transparent, stable and predictable institutional environment for enterprises, and improve the convenience of filing while complementing the shortcomings of supervision. Actively promote cross-border regulatory cooperation and declare that the vie structure enterprises that are legal and compliant can be listed abroad after filing, which will help to improve the market’s concern about the overseas listing of Chinese enterprises and boost market confidence. We should pay attention to Tencent, US corps, many spells, Alibaba, NetEase, Jingdong, fast hand, beep Kwai, health and graffiti.
Risk tip: there is uncertainty in the communication between China and the United States on audit supervision; Continue to pay attention to the system connection between overseas listing filing and network security review.
