Huaxin Cement’s solution to legacy B-share issue

By Ma Yunyan and Shi Zhiheng, Shu Jin Law Firm

Huaxin Cement was founded in 1907, and listed its A shares and B shares on the Shanghai Stock Exchange (SSE) in 1994. China’s capital market has dramatically evolved since then. B shares were once the only avenue for foreign investors, who can now invest through the Qualified Foreign Institutional Investor (QFII) scheme, Southbound Trading Link and other channels.

B shares have, meanwhile, essentially lost financing function due to increasingly prominent historical problems, including the inability to finance, low market valuation and poor liquidity, and are even becoming a hindrance to A-share refinancing.

Since the trading amount, volume and turnover ratio of Huaxin Cement B shares were far lower than those of its A shares, the company chose the creative solution of “converting B shares into H shares” to address its B-share legacy issue.

Transaction summary

Ma Yunyan, Shu Jin Law Firm
Ma Yunyan
Senior Partner
Shu Jin Law Firm

Huaxin Cement listed on both the SSE and the Stock Exchange of Hong Kong (SEHK) after converting its 734,720,000 domestically listed foreign investment shares (B shares) into overseas listed foreign investment shares (H shares), traded on the Main Board of the SEHK by way of introduction.

Shu Jin Law Firm acted as the PRC counsel for Huaxin Cement in this deal, participating in the whole process of the deal proposal verification, and providing high-quality legal services for the smooth progress of the proposal and its effective and compliant implementation.

Trading difficulties

B shares represent a legacy issue of the capital markets. Although the China Securities Regulatory Commission (CSRC) has been discussing solutions since 2004, few companies have effectively addressed the B-share issue, and the conversion to H shares is even rarer as a final solution, so it is not at all easy.

Although the B-to-H shares conversion has been proven feasible by projects of CIMC, Lizon Pharmaceutical and Vanke since 2012, all these cases involved B shares traded on the Shenzhen Stock Exchange (SZSE) alone, and occurred at least a decade ago.

The decade since has witnessed substantial changes in the regulatory environment of the securities markets, especially the domestic capital market regime, after the Securities Law was amended.

Shi Zhiheng, Shu Jin Law Firm
Shi Zhiheng
Senior Partner
Shu Jin Law Firm

Shu Jin Law Firm, together with various intermediary agencies at home and abroad, have repeatedly verified implementation details of the solution to ensure compliance of the deal execution and external information disclosure.

As the first B-to-H share conversion project on the SSE, this deal involved a number of significant unprecedented matters such as currency and trading system conversion. The newly designed deal proposal needed to meet regulatory requirements on listing at home and abroad, conforming to regulatory rules of the CSRC, the State Administration of Foreign Exchange (SAFE), the SSE, the Securities and Futures Commission (SFC) of Hong Kong, the SEHK, and settlement companies in Hong Kong and Shanghai.

As B shares traded on the SSE are denominated in US dollars, while on the SZSE they are denominated in Hong Kong dollars, there was no shortcut to converting B shares into HKD-denominated H shares. Design of the conversion – in terms of the currency of the cash option consideration, future distribution of H-share cash dividends, and the currency of proceeds from a future sale of H shares available to investors – needed to be verified repeatedly, in conjunction with foreign exchange trading rules and investor intentions.

Theoretically feasible and logically reasonable, the proposal was therefore implemented step by step.


Huaxin Cement was listed on the Main Board of the SEHK on 28 March 2022, marking the final closing of the deal. As the first case of a successful B-to-H share conversion on the SSE, Huaxin Cement provides a model case for other companies on this exchange to address B share issues in future.

In terms of investor protection, the rights and interests of original B-share shareholders can be protected by setting up the mechanism for independent director soliciting voting rights and the cash option mechanism.

For Huaxin Cement, this deal reversed an inability to finance inactive trading in its B shares, adding a financing channel in the overseas capital markets conducive to further internationalisation of the company.

During execution of the deal, lawyers at the firm assisted Huaxin Cement in adjusting the corporate governance system – including the articles of association, pursuant to the regulatory rules for listed companies at home and abroad – helping the company further improve its corporate governance structure and enhance its visibility and international influence.

Future trend

The B-share market was established in 1992 and used to be the only channel for foreign investment in the Chinese stock market. Shu Jin Law Firm has acted for the issuer or underwriter for about 40% of the companies in the B-share market since then.

However, in the past decade, B shares have de facto lost their financing function. Investor interest in the B-share market is waning and trading is not active. These legacy problems have further hindered the development and even implicated the refinancing of A shares, so B-share companies are not surprisingly starting to seek corresponding solutions.

Shu Jin Law Firm successfully handled such projects as Vanke’s B-to-H share conversion, Seazen Holdings’ issuance of A shares and the merger of its B shares through a share swap, Shenzhen New Nanshan Holding’s issuance of A shares, and the merger of China Merchants Port Group’s A shares and B shares.

After closing the B-to-H shares conversion project of Huaxin Cement, Shu Jin Law Firm has become the only Chinese law firm providing legal services for B-to-H share conversion projects on both the SSE and SZSE.

Ma Yunyan is a senior partner at Shu Jin Law Firm. She can be contacted at +86 755 8826 5120 or by e-mail at

Shi Zhiheng is a senior partner at Shu Jin Law Firm. She can be contacted at +86 755 8828 5290 or by e-mail at