How to purchase PRC-listed companies

Grandall Legal Group
Charles Guan
[email protected]

If a foreign investor intends to have its affiliate(s) listed on the stock exchange of the PRC (for the purposes of this article, this excludes Hong Kong, Macao and Taiwan), it has the following three major options: (1) to realise the initial public offering (IPO) through its PRC foreign-funded enterprise; (2) to be listed on the international board that is under consideration by the relevant authorities of the PRC; or (3) to achieve its IPO target by purchasing a listed PRC company.

Whereas IPO conditions are relatively strict and take a long time, the timeframe for the launch of a PRC international board is still uncertain. Therefore, the acquisition method is an advisable choice for foreign investors to realise their IPOs on the PRC capital market.

Main ways to purchase

1) Indirect acquisition

The indirect acquisition method includes two kinds of options: (i) to purchase equities or property rights of the controlling shareholder of a PRC listed company; and (ii) to subscribe to the increased capital of the controlling shareholder of a PRC listed company. Both of the options are to realise indirect control over the PRC listed company through control over the controlling shareholder of such PRC listed company. The indirect acquisition method provides fewer requirements and limitations on the qualification of foreign investors, and its payment method may include equity transfer, purchase of net assets and subscription of capital increase.

2) Direct acquisition

The direct acquisition method means that a foreign investor directly purchases equities in a PRC listed company, which mainly includes purchase by agreement, tender offer and non-public additional offering.

No matter whether the foreign investor purchases a PRC listed company through the direct or indirect acquisition method, the purchase shall be subject to the requirements set out in the Catalogue for the Guidance of Foreign Investment Industries, as amended or updated from time to time.

Main approval procedures

1) Approval from Ministry of Commerce

Where the purchaser is a foreign investor, such purchase shall be subject to approval from the Ministry of Commerce of PRC (MOC). Basic procedures applicable to the purchase to be achieved through acquisition by agreement are as follows:

a) The Board of Directors of the target listed company passes the relevant resolution;

b) General meeting of shareholders of the listed company passes the relevant resolution;

c) To enter into relevant agreement;

d) To submit relevant application documents to the MOC;

e) If the investor holds shares in the listed company, it shall, upon receipt of above approval, (a) go through the formalities for confirmation of equity transfer with the securities exchange, (b) apply to securities registration and clearing institution for registration of share transfer, and (c) report to China Securities Regulatory Commission (CSRC) for filing; and

f) Upon completion of the agreed transfer, the listed company shall (a) visit the MOC and receive its Certificate of Approval for Enterprise with Foreign Investment, and (b) change its registration information with the administration of industry of commerce on the basis of such certificate of approval.

If the foreign investor intends to obtain actual control over the listed company by way of agreed transfer, after being approved by the MOC it shall submit a purchase report and relevant documents to the CSRC. After the CSRC has reviewed and agreed such documents, the investor shall go through formalities with the securities exchange to confirm such transfer, and apply to the securities registration and clearing institution for the registration of share transfer. Of course, the investor shall also be obliged to report and announce the purchase of the listed company and perform other information disclosure obligations.

2) If the target company has a reorganisation of its substantial assets, it shall be subject to the review and approval of the M&A and Restructuring Review Committee, CSRC.

In case the purchase of a listed company involves the reorganisation of substantial assets then, in accordance with the Administration Measures for Reorganization of Substantial Assets of Listed Companies promulgated by the CSRC, it shall be subject to the review and approval of the M&A and Restructuring Review Committee, CSRC.

3) Furthermore, if the target listed company makes a non-public offering to the purchaser, or the purchase involves any exemption from obligation for the takeover offer or other relevant matters, it shall also be subject to the review and approval of CSRC.

4) If the target company is a state-controlled listed company, corresponding procedures shall be processed in accordance with the relevant provisions of the PRC in relation to the administration on state-owned assets. The approval of the State-Owned Assets Supervision and Administration Commission shall also be obtained.