The world economy is enduring downturn and bond finance is becoming the capital market mainstream. However, it is reported that China government is considering establish a venture stock exchange within this year. Some foreign invested enterprises (“FIE”) seeking long term development in China may have desire to conduct a domestic listing to enable it raise capital fund from PRC securities market. Therefore, in this article, I highlight a few issues that may be of interests to FIE regarding initial public offering on China stock exchange.

Can FIE be listed on PRC stock exchange?

A foreign invested stock company (also known as foreign invested company limited by shares, or FICLS) that measures up IPO criteria, and if its establishment and operation complies with related foreign investment industry policies may apply to domestic listing and issue shares. For detail IPO criteria, please refer to http://www.deltabridges.com/news/ipo-criteria-comparison-main-board-and-...

What worth noting when FIE is converted to FICLS?

There are few points worth noting when converting FIE to FICLS: (1) a joint venture enterprise, a joint cooperative enterprise or a wholly foreign owned enterprise shall have at least three years of profit-making history before applying for conversion to FICLS and its tax preferential period shall not be recalculated; (2) in the event that foreign shareholders using free convertible foreign exchange subscribe at least 25% shares in the equity of a state owned enterprise or a collectively owned enterprise whose operation period is more than 5 years and it has 3 years of profit-making history, such enterprise may apply to convert to FICLS on the condition that its business scope complies with foreign investment industry policies; (3) already established domestic stock company may be converted to FICLS by way of new share issuance, share transfer or by way of issuing domestic listed foreign capital shares and offshore listed foreign capital shares.

Can promoters of FICLS be natural persons?

PRC promoters of FICLS can not be natural persons, unless they were the shareholders of the original domestic company which is subsequently converted to FICLS by way of merger with foreign investors. Under such situation, PRC natural persons may remain their shareholder status. To the contrary, foreign shareholders of FICLS may be foreign companies, foreign economic organization and natural persons.

What other requirements shall FICLS meet？

FICLS that conducts IPO shall also satisfy: (1) having passed the joint annual inspections of FIE for the recent 3 years; (2) its business scope complies with relevant regulations concerning foreign investment; (3) the proportion of shares held by foreign investors shall not be less than 10% of the total shares post-IPO; (4) if, according to relevant regulations, FICLS shall be controlled by the Chinese party or if, there are special provisions regarding the holding of shares by the Chinese parties, the Chinese parties shall continue to keep their controlling positions or continue to hold the proportion of shares post-IPO.

How about the lock-up period?

Under the Old listing Rules, if a non-controlling shareholder of a stock company has held shares for less than 12 months pre-IPO, its shares in the stock company will be locked up for 3 years after the listing. On September 4 2008, a New Listing Rules came into effect. The New Listing Rules specify, among other things, that non-controlling shareholders of a domestic listed company shall be subject to only a one-year lock-up period, regardless of the time of their investment in the stock companies pre-IPO.

(This article is prepared for reference only and may not be construed as legal advice. Should you have any questions and comments, you are welcome to contact the author.)