State-owned Assets Supervision and Administration Commission of the State Council and China Securities Regulatory Commission, Tentative Measures for the Administration of the Transfer of Shares of Listed Companies Held by State-owned Shareholders

(1) in the case of a listed company with a total share capital of no more than one billion shares, the ratio of the net aggregate shares transferred (here and hereinafter, meaning the balance of aggregate transferred shares after the deduction of aggregate increase in shares held) by the state-owned shareholder in the past three consecutive financial years has not reached 5% of the total share capital of the listed company; in the case of a listed company with a total share capital of more than one billion shares, the number of net aggregate shares transferred by the state-controlled shareholder in the past three consecutive financial years has not reached 50 million or the ratio of net aggregate transferred shares has not reached 3% of the total share capital of the listed company; and

(2) the transfer of shares by the state-controlled shareholder does not involve the transfer of controlling power of the listed company.

Where several state-owned shareholders are under the same controlling party, the quantity or ratio of the net aggregate transferred shares shall be calculated in aggregate (Article 8). Where the transfer of shares by a state-owned shareholder fails to fulfil either of the criteria specified above, the share transfer proposal may be implemented only after it has been submitted to the state-owned assets supervision and administration authority of the State Council level by level for check and approval (Article 9). If a state-owned shareholder transfers shares of a listed company by way of block trade, the transfer price may not be less than the weighted average price of the listed company's shares traded on that day (Article 11).

Where a state-owned shareholder intends to transfer shares of a listed company by agreement, it shall, after internal decision-making, submit a written report level by level to the relevant state-owned assets supervision and administration authority at the provincial level or above in accordance with the stipulated procedure in a timely manner and shall at the same time notify the listed company in writing of the information on the proposed transfer of shares by agreement. The listed company shall publicize such information according to law (Article 14). A state-owned shareholders may directly conclude a share transfer agreement without disclosing the information on the proposed transfer upon approval of the relevant state-owned assets supervision and administration authority at or above the provincial level under special circumstances such as:

(1) the listed company has been loss-making for two consecutive years and is facing the risk of delisting or a serious financial crisis, and the transferee proposes a major asset reorganization plan and a specific time schedule for such plan;

(2) there are special requirements on the transferee for key industries and sectors of the national economy; or

(3) the buyback of shares of the listed company involves shares held by the state-owned shareholder (Article 19).

Where a state-owned controlling shareholder intends to transfer shares by agreement and shall no longer possess the controlling power over the listed company, it shall engage a professional institution registered in China to act as the financial consultant (Article 22). The price of shares of a listed company transferred by way of agreement by a state-owned shareholder shall be determined based on the arithmetic average of the daily weighted average price of the 30 trading days prior to the date of announcement of the information on the transfer of the shares of the listed company (or the date of conclusion of the share transfer agreement where the public announcement of information on the share transfer is not required after approval). Where a discount of price is truly necessary, the minimum price may not be less than 90% of the arithmetic average (Article 24).

Related Legislation: PRC Company Law (Amended), Oct 27 2005, CLP 2005 No.10 p.21; PRC Securities Law (Amended), Oct 27 2005, CLP 2006 No.1 p.31; and Tentative Regulations for the Supervision and Administration of Enterprise State-owned Assets, May 27 2003