In February 2023, Chinese Issuers witnessed significant changes as the China Securities Regulatory Commission (“CSRC”) rolled out substantial reforms for China-based companies aiming for overseas listings, particularly in U.S. capital markets.
These reforms, outlined in the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies (“Trial Measures”) along with accompanying guidelines, collectively referred to as the New Regulations for Overseas Listings, took effect on March 31, 2023.
New Regulations for Overseas Listings
1. Enhanced Accountability
The IPO process now places greater accountability on intermediaries such as sponsors and professional parties. The regulations mandate thorough due diligence, verification of shareholding structures, and the provision of clear legal opinions. This heightened scrutiny significantly increases the workload for these intermediaries and necessitates effective collaboration with legal and financial partners to meet the new standards.
2. Clarification Of Indirect Overseas Listing
The Trial Measures provided clarity by redefining “indirect overseas listing “, focusing on substance rather than form. Companies are now required to meet specific criteria for classification, including revenue proportion and the location of business activities.
3. Negative List
Article 8 of the Trial Measures introduced a negative list, outlining circumstances where overseas listings are prohibited. This emphasizes legality, national security, criminality, ongoing investigations, and equity ownership disputes. Companies now need to navigate these criteria to ensure compliance and avoid penalties and setbacks in the listing process.
4. Filing Requirements
The regulations impose detailed filing requirements for both direct and indirect overseas listings. Overseas securities companies sponsoring domestic enterprise listings are now subject to Chinese regulations, including annual filing requirements and assuming responsibility for the accuracy of materials. Companies need to adapt to these heightened requirements, ensuring thorough documentation and compliance with Chinese regulations throughout the listing process.
5. Recognition Of Vie Structure
The New Regulations officially recognize Variable Interest Entity (“VIE”) structures for China companies’ overseas listings. While providing a framework for compliance, uncertainties linger around the consultation process with industry sectoral authorities. Companies must navigate these uncertainties, seeking legal guidance to ensure the lawfulness of their VIE structures and compliance with the new regulations.
The regulatory changes brought about complexities; nevertheless, 25 Chinese issuers have successfully received approval from the CSRC for U.S. listing. As of the latest update on December 28, 2023, 27 Chinese issuers are still awaiting approval from the CSRC for filing.
With an increasing number of China concept stocks successfully passing the record-filing process with the CSRC in 2023, it signals that the process of China concept stocks listing overseas will likely be smoother in 2024.
