New guidelines for overseas GDR offerings

Overseas GDR offerings new guidelines

To address the uncertainties of the recent developments on raising funds overseas, the China Securities Regulatory Commission (CSRC) has published detailed guidance on the registration, filing, use of proceeds and other requirements on overseas offerings of global depositary receipts (GDRs) by Chinese listed companies.

On 16 May 2023, the CSRC published Guideline No. 6 on the Application of Regulatory Rules on Overseas Securities Offerings and Listings: Guidelines for Overseas Offering of Global Depositary Receipts by Domestic Listed Companies.

Earlier, on 17 February 2023, the CSRC published a new set of regulations – the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies and five supporting guidelines – which took effect from 31 March 2023.

These new regulations mark a new filing regime that requires Chinese companies to register their direct and indirect overseas listings and securities offerings with the CSRC by filing relevant materials.

The CSRC’s latest GDR update is the sixth supporting guideline providing detailed guidance on the registration, filing, use of proceeds and other requirements on overseas offerings of GDRs by Chinese listed companies.

Requirements for registration and filing. In terms of application procedures, the GDR Guideline clarifies and refines requirements for registration and filing:

Registration of issuance of underlying new share Listing filing to CSRC
Initial overseas offering of GDRs Prior to submitting the listing application for the GDR offering overseas, the sponsor shall submit the registration application of the issuance of underlying new shares to the relevant stock exchange in China. The stock exchange will issue its review opinion with reference to the procedures for a listed company conducting a non-public issuance of shares to specific subscriber(s) and report to the CSRC for registration. Within three business days after submission of the listing application for the overseas GDR offering
Re-issuance of GDRs in the same overseas market Within three business days after completion of the overseas GDR offering
Notes The CSRC may combine the registration and filing procedures.

The Chinese stock exchange review procedure, as in the table above, is a new requirement under the GDR Guideline. According to the GDR Guideline’s provisions, an application for registration of underlying new shares should be submitted to the relevant Chinese stock exchange prior to submission of the listing application for an overseas GDR offering, but before completion of registration with the CSRC. The registration of issuance of underlying new shares and GDR listing filing procedures may be combined by the CSRC.

Based on latest market examples under the full registration regime, it usually takes around four to six months for a non-public offering of an A-share listed company to complete the CSRC registration process after relevant documents are accepted by the Chinese stock exchange.

Use of GDR proceeds. The GDR Guideline sets new requirements for the use of proceeds from the GDR offering, calling for them to comply with conditons of national industrial policies while meeting overseas plans and business development needs. There were no such specific requirements previously.

In addition, the GDR Guideline requires listed companies to raise funds rationally, determine their offering scale reasonably and self-regulate based on Supervision Guide No. 2 on Listed Companies – Regulation on the Management and Use of Proceeds from Fund Raising by Listed Companies, and other regulations.

As such, the use of proceeds from a GDR offering is expected to be more strictly regulated than before, comparable to the use of proceeds from domestic share listings. For example, a listed company should use its IPO proceeds on its principal business activities.

Additionally, the use of proceeds by companies listed on the Star Board of the Shanghai Stock Exchange should be in line with national industrial policy and relevant laws and regulations, and should be invested in the industry of science and technology innovation.

Unallocated proceeds may be temporarily used as the listed company’s working capital provided:

  1. They are used for the production and the operation of the company’s principal business, and
  2. The maximum period of such use of proceeds shall not exceed 12 months.

Document preparation. The GDR Guideline also contains further documentary requirements, such as filing application materials, decision-making procedure documents, the prospectus and issuance report.

In particular, for underlying new shares, the prospectus should be prepared and disclosed according to the Guidelines on the Content and Format of Information Disclosure by Companies Offering Securities to the Public No. 61 – Prospectus and Report on Issuance of Securities by Listed Companies to Target Subscribers. This requires listed companies to disclose risks, including the impact on the A-share price resulting from the conversion of GDRs into underlying new A shares after expiration of the conversion restriction period.

This means the prospectus must cover all the content required by guideline No. 61 and be adjusted according to its format and style when it is submitted to the Chinese stock exchange for review.

Alignment with A-share non-public issuance requirements. The GDR Guideline has further aligned requirements on GDR offerings with A-share non-public share issuance rules. For example, it provides that the decision-making process, information disclosure and other matters of GDR offerings should comply with relevant rules for non-public share issuance to specific subscriber(s).

Accordingly, the board of directors and shareholders in general meetings should consider and approve matters on the issuance plan, demonstration and analysis report, and feasibility report on the use of proceeds. Companies are also required to fully explain whether the offering is in line with the GDR’s positioning characteristics.

As a result, preparation of the feasibility report on the use of proceeds will also become relatively time-consuming.

Moratorium. The GDR Guideline specifies that the offering interval should be determined with reference to article 16 of the Measures on Administration of the Issuance and Registration of Securities by Listed Companies, and the fourth point of the Opinions on the Application of Securities and Futures Laws No. 18 on share issuance to a specific subscriber.

According to article 16, the date of the board resolution on a secondary offering by listed companies must, in principle, be no less than 18 months from the date of receipt of proceeds from the last offering.

If the proceeds from the last offering are used up – or if there is no change in the investment plan and proceeds from the last offering are invested as planned – the corresponding offering interval must, in principle, be no less than six months.

Transitional period. For ongoing GDR projects, the GDR Guideline clarifies transitional arrangements using 31 March 2023 as the benchmark date:

  • Chinese listed companies that submitted applications for overseas GDR offerings but had not received CSRC approval before 31 March 2023 are required to fulfil the registration procedure for the issuance of underlying new shares and the filing procedure for overseas offerings and listings.
  • Chinese listed companies that obtained shareholders’ approval before 31 March 2023 for their proposed overseas GDR offerings are not required to obtain shareholders’ approvals again.

Business Law Digest is compiled with the assistance of Baker McKenzie. Readers should not act on this information without seeking professional legal advice. You can contact Baker McKenzie by e-mailing Howard Wu (Shanghai) at