Takeovers of Listed Companies under the SSE Rules

Disclosure requirements

As a general rule, a SSE listed company must disclose in a reasonable and timely manner all the information that may have a substantive effect on the trading prices of its stock or related derivatives, and must ensure that it promptly files the relevant public announcements and materials with the SSE. A material event such as changes or contemplated changes regarding a listed company's major shareholder or actual controlling person must be reported to the SSE and publicly disclosed. Shareholders of listed companies are also required to inform the listed company of material events that have occurred, or are reasonably expected to occur.

Disclosure of a material event must be made in a timely manner after the earliest occurrence of any of the following: (i) adoption of the resolutions regarding the event by the listed company's board of directors or supervisors, (ii) a letter of intent or agreement regarding the event or an event that any director, supervisor or member of senior management became, or should have become aware of.

The Listing Rules create a higher standard of disclosure for a target company than for an acquirer given that disclosure is required even when a material event is at the planning stage in circumstances where: (i) the event is unable to be kept confidential, (ii) information regarding the event has been leaked or there have been market rumors regarding the event, or (iii) there have been unusual movements in the trading of the listed company's stock or related derivatives. By comparison, under the Takeover Measures, where there is a takeover by agreement, an acquirer's obligation to generally make disclosure will not arise until the execution of a definitive agreement.

Under certain circumstances, the target company may apply to the SSE for postponement of the disclosure where timely disclosure may undermine a target company's interest or mislead investors, such as when there is uncertainty in the disclosable information or where the company's commercial secrets are involved. The SSE may at its discretion grant such postponement for a period of up to two months.

From time to time, a target company is required to make public announcements as a takeover proceeds. Among others, relevant public announcements must be made when: (i) there has been material amendments to, or any termination or expiration of, a previously disclosed letter of intent or agreement regarding the takeover, (ii) government approval required for the takeover has been obtained or denied or (iii) there is any delay in the payment of consideration or delay in the previously scheduled closing of the takeover.

Trading halt requirements

In connection with the announcement of an acquisition report (or its summary) or a tender offer report, trading in the stock and related derivatives of the target company must be halted for an hour. However, a one-day-long trading halt is required in connection with the announcement of a tender offer report summary. In addition, trading must be suspended during the period from the expiration of a tender offer to the announcement by an acquirer of an acquisition status report. In certain circumstances or in accordance with the CSRC's requirement, the SSE may impose a trading halt in the stock of a target company.

Delisting requirements

The SSE will issue a delisting warning to a target company if the target company's shareholding distribution does comply with the requirements for the listing under the PRC Securities Law(中华人民共和国証券法).¹ In order for the target company that has received a delisting warning to continue to be listed, the acquirer must submit to the SSE a plan of action to maintain the target company's listing status and implement such plan within the seventh month following the expiration of the offer period. For example the acquirer may propose to dispose a portion of the target company's shares it holds to public investors so that the public floatation of the shares will be restored to, or be above the minimum public floatation level required for the listing status. If the acquirer fails to complete the action plan within the legally prescribed time limit or where compliance with the listing requirements is not otherwise achieved, the SSE has the authority to remove the securities of the target company from the listing.

Endnote

1 See Article 50 of the PRC Securities Law (Amended), which provides that at least 25% (in the case of a listed company with a share capital of more than Rmb400 million (US$50 million), 10%) of the outstanding shares of a listed company must be held by public shareholders. Previously, the PRC Company Law provided for listing requirements before its amendment.