Disclosure Rules for Shareholding Changes
November 30, 2002 | BY
clpstaff &clp articlesPu Dong Law OfficeOn September 28 2002, the China Securities Regulatory Commission (CSRC) published the Administration of Disclosure of Information on…
Pu Dong Law Office
On September 28 2002, the China Securities Regulatory Commission (CSRC) published the Administration of Disclosure of Information on the Change of Shareholdings in Listed Companies Procedures (Disclosure Procedures) concurrently with the Administration of the Takeover of Listed Companies Procedures (Takeover Procedures), and both became effective December 1 2002. The Disclosure Procedures give systematic and detailed provisions on information disclosure in the shareholding structure of PRC listed companies. We hope this law indicates one aspect of the Chinese capital markets are coming of age, with more standardized and orderly disclosure requirements introduced for acquisitions.
The Parties Involved
While the specifics of information disclosure required in the PRC Securities Law (中华人民共和国証券法) (the Securities Law) and the Share Listing Rules of both the Shanghai and Shenzhen stock exchanges (the Listing Rules) are limited to shareholders and listed companies themselves, the Disclosure Procedures impose obligations upon share controllers and coincident actors as well as shareholders (collectively, the Obliged Persons). In Article 8 of the Disclosure Procedures, a share controller is defined as "a natural person, legal person or other entity without the shares registered in its name who, through legitimate means other than share transfer in stock exchanges, such as equity controlling relationship, agreement or other arrangement, controls the companies' shares held by others". Article 9 defines coincident actors as "two or more natural persons, legal persons or other entities who, through legitimate means such as agreement, cooperation or associated relationships, make coincident declarations of will when exercising their voting rights to increase the shares controlled by them or fortify their controlling status in companies".
Disclosure Methods
Pursuant to the Disclosure Procedures, Obliged Persons shall submit a Report of Shareholding Changes among the Shareholders of Listed Companies (a Report) to the stock exchange and the CSRC, make a copy for the local CSRC agency, notify the company and make a public announcement. The Report shall include, inter alia, the condition and method of the variation and the transaction conducted by the Obliged Persons regarding such company's shares in the previous six months.
Further, if a shareholding variation results in (or will probably result in) a controlling stake in a company, the acquirer shall submit an acquisition report to the CSRC according to the Takeover Procedures, concurrently make a copy for the local CSRC agency and the stock exchange, notify the company and make a public announcement.
When Disclosure Must Take Place
In comparison with the Securities Law, the Disclosure Procedures increase Obliged Persons' responsibility by adding the circumstances where information disclosure is mandatory, including the following:
(a) when a company's issued shares held and/or controlled by an Obliged Person reaches (or is anticipated to reach), or is reduced to less than the threshold of 5% of such company's issued shares, such Obliged Person shall undertake information disclosure. Any sale or purchase of the said company's issued shares by such Obliged Person is prohibited within the respective periods in the Disclosure Procedures;
(b) for an Obliged Person already holding and/or controlling 5% of a company's issued shares, when its shareholding varies by 5% of issued shares of such company or is anticipated to vary not less than 5% of the issued shares, it shall also undertake information disclosure. Any sale or purchase of the said company's issued shares by such Obliged Person is prohibited within three or two working days after the public announcement, respectively;
(c) within two working days after registration of the change in shareholding, the Obliged Person shall make a public announcement. However, if such registration fails to be completed within 30 days after the previous public announcement of a change in shareholding, the Obliged Person shall make another public announcement and explain why registration didn't take place. As long as no registration is completed, the Obliged Person shall make a public re-announcement every 30 days;
(d) Article 28 provides that the relevant parties shall make a public announcement within three working days from the receipt of an approval notice from the competent authority in the case of a transfer of shares held by state-authorized entities or the share transfers subject to administrative examination and approval; and
(e) when an Obliged Person, through centralized trading at market prices in the stock exchanges increases or decreases its holding of the issued shares of a company by 1%, or members of the coincident actors have changed, they shall make a public announcement within two working days, but have no need to cease the sale or purchase of such company's shares nor submit another Report.
Exemptions from Disclosure
If the shareholding variation arises from the reduction of the company's equity capital or the shareholding of securities custodians is due to performance of its custodian business, submission of the Report is not required.
By Mao Baigen & Roland Sun
Pu Dong Law Office,
Shanghai
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