Trial Provisions for the Offering of Exchangeable Bonds by Shareholders of Listed Companies

2. To apply to offer exchangeable bonds, the following provisions shall be complied with:

(1) the applicant shall be a limited liability company or company limited by shares that complies with the Company Law and the Securities Law;

(2) the company's organisational structure shall be sound, operate well and its internal control systems shall be free of any material defects;

(3) the company's net assets as at the end of the most recent period shall not be less than Rmb300 million;

(4) the company's realised average annual distributable profit for the most recent three financial years shall not be less than the one year's coupon payments on the corporate bonds;

(5) the aggregate balance of its corporate bonds after the contemplated issuance shall not exceed 40% of its net assets as at the end of the most recent period;

(6) the amount of the contemplated bond offering shall not exceed 70% of the market value of the shares set aside for exchange as calculated based on their average price during the 20 trading days preceding the prospectus announcement date and such shares shall be used as security for the contemplated offering of corporate bonds;

(7) the bonds shall have a good credit rating as determined by a credit rating agency; and

(8) none of the circumstances under which the offering of corporate bonds is prohibited as specified in Article 8 of the Measures for Pilot Projects for the Offering of Corporate Bonds shall apply.

3. The shares of the listed company set aside for exchange shall comply with the following provisions:

(1) the net assets of the listed company as at the end of the most recent period shall not be less than Rmb1.5 billion or the weighted average return on equity shall not be less than an average of 6% during the most recent three financial years; the lower of the net profits before and after the deduction of non-recurring gains or losses shall serve as the basis for calculating the weighted average return on equity;

(2) the shares to be used for exchange shall be shares not subject to sale restrictions at the time of the submission of the offering application and the transfer of such shares by the shareholder during the specified exchange period shall not breach its undertakings to the listed company or other shareholders; and

(3) prior to the contemplated offering of exchangeable bonds, the shares to be used for exchange shall be free of any property rights restrictions, such as having been placed under seal, impounded or frozen, title thereto shall not be disputed, they may be transferred in accordance with the law and no security interest shall have been created thereon.

4. The minimum term and maximum term of exchangeable bonds shall be one year and six years respectively, each bond shall have a face value of Rmb100 and the offering price shall be determined by the listed company's shareholder and the sponsor through a market inquiry.

The prospectus may stipulate buyback terms that specify that the listed company's shareholder may buy back unexchanged exchangeable bonds on the predetermined conditions and at the predetermined price.

The prospectus may stipulate sell-back terms that specify that the bondholders may sell the bonds that they hold back to the listed company's shareholder on the predetermined conditions and at the predetermined price.

5. Exchangeable bonds may be exchanged for the target shares only after the lapse of 12 months from the date of conclusion of the bond offering, and the bondholders shall have the option to exchange or not exchange the bonds for shares.

The price per share at which the corporate bonds are exchanged shall not be lower than the average price of the company's shares during the 20 trading days prior to the announcement of the prospectus and the average price during the preceding trading day. The prospectus shall specify the predetermined exchange price and the principles for the adjustment or revision thereof. If the adjustment or revision of the exchange price would result in the quantity of shares set aside for exchange being less than the shares required for exchange of all of the outstanding exchangeable bonds, the company must first replenish the shares set aside for exchange, create a security interest in respect of such shares and carry out the relevant registration procedures.

6. The procedure for the offering of exchangeable bonds shall be handled in accordance with Part Three of the Measures for Pilot Projects for the Offering of Corporate Bonds.

Matters relating to bond trusteeship and protection of the rights and interests of bondholders shall be handled in accordance with Part Four of the Measures for Pilot Projects for the Offering of Corporate Bonds.

Matters relating to the credit rating of exchangeable bonds shall be handled in accordance with Article 10 of Part Two of the Measures for Pilot Projects for the Offering of Corporate Bonds.

If the offeror provides security for the contemplated offering of corporate bonds in addition to the security provided in the form of the shares set aside for exchange, matters shall be handled in accordance with Article 11 of Part Two of the Measures for Pilot Projects for the Offering of Corporate Bonds.

7. The shares set aside for exchange and the fruits thereof (including any part of the capital reserve converted into share capital, bonus shares, bonuses, dividends, etc.) shall be the security for the contemplated offering of exchangeable bonds and shall be used to secure the exchange for shares for, and payment of principal and interest on the bonds to, the bondholders.

Prior to the offering of the exchangeable bonds, the corporate bond trustee and the listed company's shareholder shall execute a security contract in respect of the shares set aside for exchange, create the security in accordance with the business rules of the securities depository and clearing institution, carry out the relevant registration procedures, deposit the shares in a dedicated account and obtain the document evidencing the security rights.

When a bondholder exchanges its bonds for shares on the specified conditions, the appropriate quantity shall be withdrawn from the shares serving as security and payment made therewith. If a bondholder has opted not to exchange all or part of his bonds and the listed company's shareholder fails to discharge its obligations upon maturity, the proceeds derived from the disposal of the shares serving as security and their fruits shall be used to discharge the liability to the bondholder on a priority basis.

8. When a holder of exchangeable bonds applies for exchange, it shall issue an exchange instruction to the stock exchange via the custodian securities company, and such instruction be shall deemed an instruction to lift the security that is acceptable to the bond trustee and the offeror.

9. When applying to offer exchangeable bonds, application documents shall be prepared in accordance with the requirements hereof and information shall be disclosed on an ongoing basis in accordance with the Securities Law. When preparing the prospectus, material information of the listed company shall be disclosed with reference to the Guidelines on Contents and Formats for Information Disclosure by Companies that Offer Securities to the Public (No.23): Prospectuses for Public Offering of Corporate Bonds (Zheng Jian Fa Xing Zi [2007] No.224) as well as the relevant requirements of the abstract of the prospectus for the offering of convertible bonds by a listed company.

10. If the controlling shareholder of a listed company is to offer exchangeable bonds, it shall rationally determine the offering plan and may not directly transfer control to a third party by virtue of the contemplated offering. If an investor that holds exchangeable bonds would increase its holding of the shares of the listed company by exercising its right of exchange or if a change in the controlling shareholder of the listed company would occur as a result of the exercise of its exchange right by an investor holding exchangeable bonds, the relevant parties shall perform their obligations as specified in the Measures for the Administration of the Takeover of Listed Companies (Revised in 2014) (Order of the CSRC No.35).

11. The listing, trading, exchange, sell-back, buyback, registration, settlement, etc. of exchangeable bonds shall be handled in accordance with the relevant provisions of the stock exchange and the securities depository and clearing institution.

12. Any matters not covered herein shall be handled in accordance with other relevant CSRC provisions.

13. These Provisions shall be effective as of the date of promulgation.

Schedule: List of Application Documents for an Offering of Exchangeable Bonds

1. the prospectus signed by the relevant responsible persons

2. an offering sponsorship letter issued by the sponsor

3. an undertaking by the offeror that it has created with the securities depository and clearing institution a security over the shares set aside for exchange and has carried out the relevant registration procedures

4. the bond credit rating report issued by the credit rating agency

5. the corporate bond trust agreement and the rules of procedure for the corporate bondholders' meeting

6. the security contract for the bonds (if any) and the asset appraisal document for the mortgaged property (if any)

7. other material documents