China’s securities regulator sets overseas listing rules

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China’s securities regulator said domestic companies looking to sell shares overseas should follow national rules and apply for local registration, in a draft framework intended to clarify procedures in a market shaken by state repression of foreign listings.

The draft rules, released on Friday, follow an almost six-month hiatus in Chinese listings in the United States since the ill-fated New York IPO for ridesharing giant Didi Global Inc.

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In July, the Chinese government punished Didi for its prominent domestic regulations and later said it would put in place guidelines for Chinese companies selling shares overseas. The companies have suspended their listing plans pending further regulatory clarity from Beijing.

The China Securities Regulatory Commission said the draft rules are not aimed at tightening overseas listing policies, although it also stressed that overseas listed companies cannot disclose secrets. state and must follow national regulations such as foreign investment, cybersecurity and data. -safety laws. He is asking for a public consultation until January 23.

The rules also blessed the structure known as a variable interest entity, or VIE, which has been used since the early 2000s by virtually all Chinese internet companies to bypass China’s restrictions on foreign investment in national companies. The regulator said on Friday that companies can sell shares overseas using the VIE structure as long as they follow national laws and register with the CSRC first.

The regulator appears to be trying to create a more efficient domestic system for Chinese companies trying to raise capital abroad, said Jason Elder, a capital markets lawyer at Mayer Brown LLP who has worked on deals involving Chinese companies. He added that the framework will ultimately depend on the final directions of the CSRC.

“What they’re not pushing for is further dissociation or decoupling from the global financial system, but instead they recognize that their regulatory environment could be improved to provide more certainty that overseas listed companies are complying. to national laws, ”said the elder.

The rules will first apply to companies looking to sell shares overseas and will also apply to those looking for secondary listings, stolen listings or listings through ad hoc acquisition companies. For those already listed overseas, there will be an indefinite grace period, the CSRC said.

A company should file an application for registration with the CSRC within three business days of filing a foreign IPO. International banks that act as sponsors or primary underwriters of overseas listings of Chinese companies are also required to register with the CSRC.

The development of the draft rules aims to provide a clearer framework for overseas listing and promote a stable and predictable political environment, the CSRC said. He added that he has always supported Chinese companies in choosing their own SEO destinations.

The language used to describe the process of obtaining CSRC approval for overseas listing is ‘registration’, which in the domestic market alludes to a friendly tone and generally indicates that the regulator will only check the completeness of the companies’ disclosure and if there are any major compliance or legal issues.

In the United States, securities regulators have started a countdown that will force many Chinese companies to exit U.S. stock exchanges. At the end of 2020, then-President Donald Trump signed a law banning trading in securities in foreign companies whose audit working papers cannot be inspected by US regulators for three consecutive years. That year, Luckin Coffee Inc.,

a rival to Starbucks Corp.

in China, allowed to manufacture income and expenditure.

“In recent years, some overseas-listed companies have committed serious violations of laws and regulations such as financial fraud, which have damaged the overall international image of Chinese companies and harmed the overseas financing of companies. Chinese companies, ”the CSRC said.

In light of Washington’s scrutiny, some Chinese companies have shifted to Hong Kong for IPOs.

Companies should get approval from the CSRC before cooperating with investigations by foreign regulators, the CSRC said. The regulator reiterated that it would continue to collaborate with its foreign peers on cross-border securities regulation, in particular by strengthening information sharing and cooperation in audit and inspection.

Under the draft rules, Chinese authorities could require companies seeking to register outside the country to alienate domestic assets or operations in order to alleviate national security concerns, the CSRC said.

Write to Dave Sebastian at [email protected] and Jing Yang at [email protected]

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