By Carrie Sun｜Peizhu Kuang
On November 30, 2013, the CSRC issued the Notice on Demanding for a Strict Enforcement Regarding the Examination and Verification of Backdoor Listings shall Abide by the Standards of Initial Public Offerings (the “Notice”), confirming that:
If a major asset reorganization of a listed Company scheme constitutes a backdoor listing under Article 12 of the Measures for the Administration of Major Asset Reorganization of Listed Companies (the CSRC No. 73 Circular) (the “Reorganization Measures”), the operational entity from which the assets are purchased by the listed company shall be a joint stock limited company or a limited liability company which fulfills the conditions and requirements for listing under the Measures for the Administration of Initial Public Offering and Listing of Shares (the CSRC No. 32 Circular) (the “IPO Measures”);
Backdoor listings on the ChiNext board will not be allowed.
Historically, the CSRC has argued for a trend towards censoring an IPO for backdoor listings when negotiating the amendments to the Reorganization Measures in August 2011. The CSRC then further clarified in the Questions and Response to the Decision on Revising the Relevant Provisions on Major Asset Reorganization and Supporting Financing for Listed Companies, issued on January 19, 2012, that trend towards censorship of backdoor listings means the application of backdoor listings would be examined and verified in accordance with the Reorganization Measures, and would be determined by reference to the IPO Measures as well. By issuing the Notice this time, the CSRC further strengthens the implementation of the above principles.
Thus, while taking the prior suspension of IPO in main board and the current IPO reformation into consideration, we can infer from the Notice that the CSRC’s trend towards stricter regulation of backdoor listings is intended to control the heat of the investments on backdoor listings. The relevant regulations, such as the Reorganization Measures, will be revised based on the principles set up by the Notice and be applied accordingly.
Ms. Carrie Sun is a Shenzhen-based partner with Global Law Office who specializes in capital markets, cross border M&A, PE/VC and foreign direct investment. (E-mail: sunhaishan@glo.com.cn)
Ms. Peizhu Kuang is a Shenzhen-based associate with Global Law Office who specializes in capital markets, cross border M&A, PE/VC and foreign direct investment. (E-mail: kuangpeizhu@glo.com.cn)
