Stricter rules on acquisitions released
February 28, 2012 | BY
clpstaff &clp articles &The Chinese Securities and Regulatory Commission has amended articles 62 and 63. The changes to the acquisition process are minor, but setting up an expert advisory committee is an encouraging step.
On February 14, the CSRC released its Decision on Amending Articles 62 and 63 of the Measures for the Administration of the Takeover of Listed Companies (中国证券监督管理委员会关于修改〈上市公司收购管理办法〉第六十二条及第六十三条的决定). The amendments come into force on March 15 and “hope to reduce price volatility and enhance the fairness of trade,” said a CSRC official to the China Daily newspaper.
The amendments order that shareholders (those that own 50% of a listed company's issued stocks) must disclose a 1% increase in their stakes during the acquisition process. If the increase exceeds 2%, shareholders must stop purchases for the rest of the day and the day after. Previously, the CSRC required disclosures of 5% or more.
Partner Li Qiang at O'Melveny & Myers in Shanghai told China Law & Practice: “It does not change the acquisition process a single bit – the CSRC's intention is to protect small share holders and investors falling in line with their policy.” Li added that the CSRC has some momentum and they are starting with small steps, but ultimately it is the high-end investors that dominate China's capital markets.
However, a lower disclosure percentage “will reduce the volatility of the share price of a target company, and a shareholder will be better able to estimate the necessary funds for the acquisition,” said Lin Zhong, partner at Chen & Co in Shanghai. The amendments also remove several administrative reviewing and approval burdens. Lin said that the amendments are a small step, but the changes “promote and support the restructuring and takeover of listed companies”.
The amended article also calls for an expert advisory committee that will provide advice, accounting and asset appraisal for listed company acquisitions. Committee members can serve a maximum of three consecutive years and are selected by the CSRC. They can vote if a company is able to obtain share-issue approvals before the verification department makes its final decision.
“This is an encouraging and positive step from the CSRC. The committee allows professionals to voice their opinions and this is a trend we are seeing more of, especially in progressive cities like Shanghai,” said Li. He added that the big picture with capital markets in China is that the government always has the final say, but this committee will allow professionals firms to add value.
By David Tring
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