In the August 2006 issue of the China Law Bulletin, we reported that the Provisions for Foreign Investors to Merge and Acquire Domestic Enterprises (关于外国投资者并购境内企业的规定) (the "M&A Rules") require approval by the China Securities Regulatory Commission ("CSRC") in order for
an offshore SPV that holds assets in China to undertake a listing outside China (an "SPV Listing"). On September 21, 2006, the CSRC published a notification (the "Notification") on its official website with provisions setting
out the legislative basis for this requirement and the conditions, procedures, and timeline for obtaining CSRC of an SPV Listing.
While the Notification is brief, a number of aspects are noteworthy, including as follows:
- Prior to April 2003, a no-comment letter was required from the CSRC prior to the overseas listing of an offshore SPV owned
by Chinese individuals and with Chinese assets ("offshore SPV"). However, in April 2003, the CSRC abolished this requirement.
It was widely believed at the time that the CSRC had concluded that it may not have the statutory authorization under the
Administrative Permission Law to continue to impose such a requirement.
The Notification cites provisions from the Securities Law (证券法), the Notice of the State Council on Further Strengthening Administration of Overseas Offerings and Listings (国务院关于进一步加强在境外发行股票和上市管理的通知) (the "State Council Notice"), and the M&A Rules as the statutory basis for requiring an application
to the CSRC in relation to an SPV Listing.
Interestingly, the provisions of the Securities Law and the State Council Notice cited in the Notification were already in
effect at the time the CSRC revoked its no-comment letter requirement. It appears that, in issuing the notification, the CSRC
may be reasserting a broader view of the scope of its statutory authorization.
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Prior to issuance of the Notification, many PRC practitioners took the view that the State Council Notice was only applicable
to SPV Listings involving State-owned assets. The citation of the State Council Notice and the M&A Rules in the Notification
suggests that the CSRC may wish to unify the administration and control of SPV Listings that involve State-owned assets with
those that do not.
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- The Notification sets out a detailed list of 26 items that need to be submitted to the CSRC in connection with a proposed
listing, including Ministry of Commerce approval of the acquisition of the interest in the domestic enterprise by the offshore
SPV, registration of the overseas investment with the State Administration of Foreign Exchange, and the relevant provincial
government’s approval of the listing. The Notification implicitly suggests that an SPV Listing, even when it does not involve
State-owned assets, requires provincial government approval as well as CSRC approval. This raises the question of the timing
of and the process for obtaining such provincial government approval.
The Notification leaves unstated the precise scope of the requirement for CSRC approval of an SPV Listing. Are all types of
overseas listings of offshore SPVs to be subject to CSRC approval? If so, further clarification is needed on when application
for approval should be made and how long the approval process will take. Whether the CSRC will adopt a narrow or broad view
of its statutory authorization is uncertain, and PRC legal practitioners are divided on the scope and effect of the Notification.
We can only wait for the CSRC to issue more detailed guidelines or for a market practice to evolve before we can fully understand
the effect the Notification will have on SPV Listings that involve assets in China that are not State-owned assets.
