China - Questions And Answers On Foreign Investors' Strategic Investment In A-share Listed Companies.
Legal News & Analysis - Asia Pacific - China - Capital Markets - Regulatory & Compliance
25 August, 2019
The A-share market in China is opened to foreign investors to a limited extent. This Q&A discusses three methods for foreign investors to participate in the A-share market: (i) private placement of the shares of listed companies (the "Private Placement"), (ii) foreign investors accepting the transfer of shares from existing shareholders of listed companies by agreement (the "Acquiring by Agreement"), and (iii) the listed companies issue shares as consideration to purchase the equities of a target company held by foreign investors which results in foreign investors becoming shareholders of listed companies (the "Equity Restructuring").
According to current PRC laws, the main methods for foreign investors to directly invest in A-share listed companies include:
- Private Placement;
- Acquiring by Agreement;
- Equity Restructuring;
- Investing through Qualified Foreign Institutional Investor (QFII) / RMB Qualified Foreign Institutional Investor (RQFII);
- Investing through Shanghai-Hong Kong Stock Connect / Shenzhen-Hong Kong Stock Connect; and
- Holding shares of listed companies through equity incentive schemes which allocate shares to foreign natural persons.
The Administrative Measures for Strategic Investment by Foreign Investors in Listed Companies (the "Strategic Investment Measures") shall be applicable to foreign investors’ investment through Private Placement or Acquiring by Agreement. Since Equity Restructuring involves Private Placement, in theory, the Strategic Investment Measures shall also apply to Equity Restructuring. However, in practice, regulatory authorities will generally lower the requirements on foreign investors who participate in the Equity Restructuring, such as investors’ qualifications, shareholding percentage, etc. Thus, foreign investors need to communicate with the regulatory authorities on the basis of specific case conditions.
It is also necessary to note that in July 2018, the PRC Ministry of Commerce has issued the Administrative Measures for Strategic Investment by Foreign Investors in Listed Companies (Draft for Comment) (the "Draft for Comment"). The Draft for Comment has made important amendments to the Strategic Investment Measures with regard to the foreign investors’ qualifications, shareholding percentages, lock-up period and other matters. Although the Draft for Comment has not been officially implemented yet, in practice, the regulatory authorities have referred to certain provisions of the Draft for Comment. Therefore, it is recommended to communicate the relevant matters with the regulatory authorities in advance in the implementation of specific projects.
For further information, please contact:
Hang Wang, Partner, Baker McKenzie