In the August 2006 issue of the China Law Bulletin, we reported that the Provisions for Foreign Investors to Merge and Acquire Domestic Enterprises (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, the Notice of the State Council on Further Strengthening Administration of Overseas Offerings and Listings (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.
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.
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.
Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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