New Share Offerings in the PRC

Insufficient regulations and the limited disclosure of relevant information are just some of the issues contributing to the weakness of capital markets in the PRC. In an attempt to improve corporate governance, the CSRC has taken a step in the right direction with the recent promulgation of a new law that addresses the shortcomings of China's capital markets.

On March 28 2001, the China Securities Regulatory Commission (CSRC) promulgated the Administration of Offering New Shares by Listed Companies Procedures (Procedures). These Procedures represent another coherent step towards rationalizing the rules in Chinese capital markets and improving corporate governance. The Procedures supersede two previous legal notices, the Notice on Issues concerning Share Placement by Listed Companies (Zhen Jian Fa [1999] No.12) and the Supplementary Notice on Issues concerning Share Placement by Listed Companies (Zhen Jian Gong Si Zi [2000] No.21), and two provisional Procedures, the Provisional Procedures on Public Offering of Shares by a Listed Company (Zhen Jian Gong Si Zi [2000] No.42) and the Provisional Tentative Procedures concerning the Issue of foreign investment shares (B-Shares) by foreign companies listed inside China (Zhen Jian Fa [1998] No.5). These Procedures are also applicable to B-shares. 

The Procedures consist of four main sections that deal with some of the issues involved in the course of fund-raising by listed companies. These sections are:

a) conditions and issues to note for new offerings;

b) procedures for offerings and approval matters;

c) information disclosure; and

d) legal responsibilities. 

The share market has always been plagued by general and insufficient legislation, compounded by poor dissemination of relevant corporate information. Obviously, with increased regulation, regulators and investors hope that the domestic share market (both A and B shares) will enjoy a longer boom period than the last boom in 1993. 

Article 2 stipulates that all offerings to the public shall conform to the Procedures. Offerings are defined as offerings of additional shares to the original shareholders and offerings to the general public. The law strictly prohibits using funds raised in this manner for investment in commercial banks, securities companies and other similar financial institutions. Only qualified securities companies may recommend offerings and act as lead underwriters. 

The CSRC requires all listed companies involved in new offerings to prepare and submit their application documents in accordance with CSRC requirements.  The Share Issue Review and Verification Committee (Committee) is responsible for conducting the actual review and verification of new issues, and the CSRC will base its approval decision on the opinion of the Committee.