Eligible companies listed on the Beijing Stock Exchange (BSE) may apply to transfer to the Star Market of Shanghai Stock Exchange (SSE) or ChiNext of the Shenzhen Stock Exchange (SZSE) under ‘Guiding Opinions on the Listing Transfers of Companies Listed on the Beijing Stock Exchange’ issued by the China Securities Regulatory Commission (CSRC) on 7 January 2022.
A series of supporting rules, collectively known as “transfer rules”, were issued by the SSE, the SZSE and the BSE, respectively, on 4 March 2022. These were: Measures for the Listing Transfer of Companies Quoted on the Beijing Stock Exchange to the Shanghai Stock Exchange Star Market (for Trial Implementation); Measures for the Listing Transfer of Companies Quoted on the Beijing Stock Exchange to ChiNext of the Shenzhen Stock Exchange (for Trial Implementation); and Guidelines for the Ongoing Supervision of Companies Listed on the Beijing Stock Exchange No. 7 – Listing Transfer.
In this article, the author outlines and analyses the core rules of listing transfer, as reference for companies planning their paths ahead in the capital market.
According to the transfer rules, a BSE-listed company applying to transfer to another stock exchange should satisfy the following conditions:
Uninterrupted BSE listing. The applicant should have been quoted on the BSE for one year without interruption. For applicants formerly quoted on the NEEQ Select, the predecessor of BSE, the time quoted will be consolidated.
Target board suitability. Firstly, applicant should be the type of business that the target board caters to. Both the Star Market and ChiNext have specific categories of businesses in mind.
Issuers on the Star Market should be sci-tech innovative firms meeting certain requirements in terms of industry, sci-tech attributes and technological advancement. Issuers on ChiNext should be fast-growing startups not on its negative list, engaged in new technologies and new business models with innovation and creativity features.
Unlike the Star Market and ChiNext, the BSE caters to innovative small and medium-sized enterprises (SMEs). Thus, when formulating plans to switch to other boards, companies listed on the BSE should carefully evaluate suitability with the target board.
Secondly, the applicant should meet the target board’s requirements for market capitalisation and financial metrics. Both the Star Market and ChiNext have multiple sets of listing standards for prospective issuers to choose from. For companies with differential voting rights, such arrangement should meet the listing requirements of the target board and satisfy the higher standards on market capitalisation and financial indicators.
With regard to differential voting rights, the BSE has relatively more lax requirements compared with the Star Market and ChiNext. Companies with switching plans are advised to determine whether or how to arrange their differential voting rights with reference to requirements of the target board.
Thirdly, applicant should satisfy other issue conditions of the target board. While transfer to a different stock exchange is not an initial public offering, based on the principle of consistency with IPO standards, the transfer rules require that companies must satisfy IPO conditions at the target board.
Special requirements. As transferring companies are already listed, unlike in an IPO, they must also meet the following special requirements:
- Did not receive an administrative penalty from the CSRC within the last three years; not under investigation in a case filed by the CSRC for a suspected violation of laws and regulations, awaiting a definitive conclusion; nor publicly censured by the NEEQ or BSE within the past 12 months;
- Amount of capital stock not less than RMB30 million (USD4.5 million);
- Number of shareholders not less than 1,000;
- Public shareholders hold 25% or more of the total shares of the transferring company, or 10% or more, in the case of a transferring company with capital stock in excess of RMB400 million; and
- Cumulative trading volume of stock via auction of not less than 10 million shares for 60 consecutive trading days (exclusive of any stock suspension day) before the announcement day of the resolution on matters concerning the listing transfer, as deliberated and adopted by the board of directors.
Transfer to a different stock exchange does not require approval or registration with the CSRC. Transferring companies need only secure approval from their board of directors and shareholders’ general meeting, then submit to the target stock exchange for review. Once approved by the stock exchange, the transfer may take place. During the transfer, the transferring company should pay close attention to information disclosure and prevent any insider trading.
With regard to pre-transfer stock of the transferring company, controlling shareholders, actual controllers and the persons acting in concert (collectively, the “related parties”), as well as the directors, supervisors and senior management, are subject to a restriction period of 12 months, beginning from the date of quotation on the target board.
Within six months to expiry of the restriction period, related parties may not reduce their shareholdings if it would lead to a change of control. In addition, if a restriction period existed before the transfer, it would continue to be effective on the new board. Shareholders of unprofitable companies and key technical staff of the transferring company should also observe other applicable trading restrictions on the target board.
In summary, the maturation of BSE’s transfer system is a boon to the bridge-building efforts between China’s multiple layers of capital market. Companies of different types at various stages of development, after selecting a suitable platform of listing, will be granted a second choice befitting their status of growth.
However, as noted, transfer requires fulfilment of largely the same conditions as an IPO on the target board, thus cannot be regarded as a means to bypass regulatory requirements. Companies are advised to prudently plan and arrange such a transfer based on their own situation.