in recent years, the transactions of foreign investment in A-share listed companies are increasing day by day. This article explores the shareholding ratio of foreign investors in A-share listed companies and the examination and approval or filing procedures to be performed from the implementation of regulations to practical cases.
Shareholding ratio and examination and approval procedures. At present, foreign investors’ investment in A-share listed companies is mainly monitored by the Regulations on M&A of Domestic Enterprises by Foreign Investors and the Measures for the Administration of Strategic Investment in Listed Companies by Foreign Investors (Measures for the Administration of Strategic Investment) and other laws and regulations. In accordance with article 3 of the Measures for the Administration of Strategic Investment, “with the approval of the Ministry of Commerce, investors can make a strategic investment in listed companies in accordance with these measures”, and article 5 provides that foreign investors “shall obtain no less than 10% of the issued shares of the company after the completion of the initial investment, except as specially provided in special industries or approved by the relevant competent authorities”.
With the promulgation of the Interim Record Management Measures for the Establishment and Change of Foreign Invested Enterprises (Record Measures) in 2016, the establishment and change of foreign-invested enterprises that do not involve the implementation of special access management measures provided by the state shall be subject to filing administration. This means that foreign investors who invest in listed foreign-invested joint-stock companies that do not involve industries of special management measures can go through the prior filing procedure without going through the examination and approval procedure of the Ministry of Commerce in accordance with the Measures for the Administration of Strategic Investment. The following cases of listed companies are available for reference:
In the above cases, the listed companies applying the filing procedure are all foreign-invested joint-stock companies before the transaction, which further proves that after the implementation of the Record Measures, in principle, if foreign M&As are involved, that is, if the listed companies invested by strategic investors are domestic-funded enterprises, the application of the Measures for the Administration of Strategic Investment shall be approved by the Ministry of Commerce; in case of changes to foreign-invested enterprises that do not involve the negative list, the examination and approval procedure shall be altered to the filing procedure.
Changes in the procedures of the competent commercial departments. On January 1, 2020, the Foreign Investment Law of the People’s Republic of China and its supporting regulation, the Measures for Reporting Foreign Investment Information, came into effect, and the Record Measures were abolished at the same time. The Foreign Investment Law, replacing the prior Law on Sino-Foreign Equity Joint Ventures, the Law on Foreign-invested Enterprises and the Law on Sino-Foreign Contractual Joint Ventures, has become the fundamental law in foreign investment, and has established the basic framework and rules of the legal system for foreign investment. It is worth noting that foreign investors only need to perform the foreign investment information reporting procedure afterwards when acquiring domestic non-foreign-invested enterprises by equity.
On June 18, 2020, the Ministry of Commerce issued the Measures for the Administration of Strategic Investment in Listed Companies by Foreign Investors (Revised Draft for Public Comment). In the Draft for Comment, the requirement of foreign investors’ shareholding ratio in implementing a strategic investment through directional issuance of new shares by listed companies was abolished, while foreign investors who implement a strategic investment through an agreement transfer and tender offer are required to hold no less than 5% of shares. For foreign strategic investment transactions that do not involve special management measures on the negative list, it is only necessary to perform the procedures of submitting foreign investment information to the competent commercial department afterwards.
Before the Draft for Comment came into effect, it is still unclear how the Foreign Investment Law and its supporting regulations are connected with the Measures for the Administration of Strategic Investment and other laws and regulations. For such transactions, we suggest communicating with the competent commercial department in advance to determine the specific implementation plan, so as to avoid uncertainty in transaction procedures.