CSRC and SSE Recently Filed Rules for the Refinancing on the STAR Market
With the release of these rules, the construction of the legal system of the Star Market has been basically completed so far, according to Fu Lichun, the Research Director of Northeast Securities.
On November 18, the China Securities Regulatory Commission (CSRC, 中国证监会) issued the ‘Administrative Measures for Issuance and Registration of Securities of Companies Listed on SSE STAR Market (for Trial Implementation)’ (‘The Star Market-listed Companies Refinancing Method’ for short), aiming to make specific stipulations on the issuance, listing review and issuance underwriting for refinancing on the SSE STAR Market.
On the same day, with the coordination and guidance by the CSRC in the above issuance, the Shanghai Stock Exchange (SSE, 上海证券交易所) has started to seek public opinions on the two sets of supporting business rules:
The first is the ‘Rules of Shanghai Stock Exchange for Issuance and Listing Review of Securities of Companies Listed on SSE STAR Market (Draft)’ (‘Rules for Listing Review’ for short).
The second is the ‘Detailed Implementation Rules of Shanghai Stock Exchange for Issuance and Underwriting of Securities of Companies Listed on the SSE STAR Market (Draft)’ (‘Rules for Issuance and Underwriting’ for short).
The highlights for the three filings consist of four aspects:
Streamline registration and reviewing procedures to improve financing efficiency
The ‘The Star Market-listed Companies Refinancing Method’ states that the review and registration duration of regulatory authorities will be minimized.
Firstly, the review period for stock exchanges will be shortened from three months to two months, and the registration period for CSRC will be shortened to fifteen days. Meanwhile, the request for multiple rounds of inquiries within 10 working days after the first round of reply is canceled, which injects more flexibility into the whole procedure.
Secondly, public and non-public offerings have been distinguished, and further simplify the non-public offering reviewing process – will be elaborated in the following part.
Simplified review procedures for small-amount non-public issuance
According to the ‘The Star Market-listed Companies Refinancing Method,’ the SSE is allowed to formulate business rules for non-public offerings on the Star Market list companies whose financing applied in the foregoing twelve months satisfies the following two criteria simultaneously: 1. Less than CNY 300 million; 2. Does not exceed 20% of the net assets at the end of last year.
According to this instruction, the SSE greatly simplifies the review procedure to this kind of matter. The ‘Rules for Listing Review’ stipulates that the application documents to be prepared will be significantly simplified, and will be accepted within one working day. Besides, the decision to either approve or reject the issuance application will be made within five working days.
Support for introducing strategic investors
The ‘The Star Market-listed Companies Refinancing Method’ encourages enterprises to introduce strategic investors in the non-public offerings.
Zhang Yuanzhong, director of Beijing Wentian Law Firm (北京问天律师事务所), commented that, compared to companies listed on other boards in China, the Star Market listed firms all belonging to the technology category, many of which are small- and medium-sized enterprises. The introduction of strategic investors could to some extent support these companies to continuously invest in R&D during their growing stage.
Moreover, according to Guo Yiming, director of Jufeng Investment Consultant (巨丰投顾), the introduction of strategic investors also has remarkable meaning in establishing a rational valuation system for the Star Market, especially in the sense that the valuation of the Star Market listed companies is relatively hard.
Strictness penalties for rule-breaking practices
To regulate the refinancing behavior in the Star Market, CSRC and SSE filed stricter punishments against fraudulent issuance. According to ‘The Star Market-listed Companies Refinancing Method,’ if the controlling shareholder, actual controller, directors, supervisors, or senior management are allegedly involved in fraudulent issuance, CSRC may take the identification of the responsible person as unsuitable candidates, or take measures to ban them from the stock market.
On top of this, particularly for controlling shareholders and actual controller, CSRC also has the right to refuse to accept the securities-relevant documents of the related unit and its subordinates for one to five years from the date of confirmation.