SMIC returns to A-share market

The listing ceremony of SMIC at Shanghai Stock Exchange

Chinese chipmaker Semiconductor Manufacturing International Corporation (SMIC) raised RMB53.2 billion (US$7.7 billion) in its recent listing on the Star market, making it the largest A-share IPO since 2010.

Incorporated in the Cayman Islands, SMIC listed in New York and Hong Kong in 2004, and delisted from the New York Stock Exchange last year. Its listing on the Star market has made it the first overseas listed red-chip company to return to the A-share market.

AllBright Law Offices acted as legal counsel to the issuer, while DeHeng Law Offices and Fangda Partners jointly acted as legal counsel to the joint sponsors and lead underwriters.

“This project involved the jurisdictions of Cayman Islands, Hong Kong and mainland China,” Wang Li, a senior partner at AllBright, told China Business Law Journal, “and we needed to compare and co-ordinate on the rules for listings in Hong Kong and mainland China.”

Shen Cheng, another senior partner at AllBright, added that it was difficult to get a company that had operated overseas for nearly two decades to comply with mainland regulations. Therefore, the legal team expended a lot of effort revising the company’s regulations and internal control system, as well as complying with supervision in Hong Kong and mainland China.

“Although the semiconductor industry is not heavily regulated, it involves exceptionally high requirements for intellectual property,” said Shen. Due to Sino-US trade tensions, the issuer’s lawyers also had to evaluate SMIC’s co-operation with specific clients for international trade compliance.

As an A+H dual-listed company, SMIC’s shares in both exchanges have been identified as the same class, therefore shareholders of A and H shares enjoy the same voting rights.

Leo Lou, a partner at Fangda, said setting up a differentiated voting rights mechanism would not only reduce the company’s voting efficiency on major future issues, but may also affect the rights of existing Hong Kong shareholders, and increase the cost of corporate governance and the difficulties of related matters being approved by the shareholders’ meeting.

Although SMIC is the largest integrated circuit manufacturing company in mainland China, it could not meet the mainland listing requirements until late April, when the China Securities Regulatory Commission lowered the enterprise market value threshold for listing.

The SMIC IPO application was approved in 19 days, from submission of the application to approval by the listing committee of the Star Market, setting a record for the fastest approval for A shares.

“In the past two years, the inclusiveness of the entire A-share market has increased, and there has been great regulatory innovation,” said Wang Yuwei, a partner at DeHeng. “We believe that more overseas listed red-chip companies will return to the A-share market based on their growth strategy and capital needs.”

AllBright’s team was led by the senior partners Shen, Wang and Lawrence Zhu. Fangda’s team was led by partners Lou and Yvette Liu. DeHeng’s team was led by partners Xu Jianjun, Wang Yuwei, Shen Hongshan and Wang Jianfeng.