Disclosure Requirement - China - B-Shares

07.03.2012

Disclosure category: 1

The information below sets out the disclosure requirements for equities (the current CBL-eligible securities), that is, B-shares of listed companies at Shanghai or Shenzhen Stock Exchange. CBL may fall under an obligation as described below to disclose the identity and holdings of customers.

Consent

In order to comply with the legislation as mentioned below, customers entering into transactions in the Chinese market consent and are hereby deemed to consent to disclosure and to the appointment of the requestor (that is, the China Securities Depository and Clearing Corporation Limited (CSDCC)) as their attorney-in-fact, under power of attorney to collect from CBL such information as is required to be disclosed.

Background and legal basis

The acquisition of B-shares by foreign investors is subject to the application for an investor code at the CSDCC, which requires the disclosure of certain information related to the investors, the beneficial owners or nominee (if applicable). For further details please refer to the Creation Link Guide - China.

Decree No. 35 of the China Securities Regulatory Committee (CSRC) regarding the measures for the administration of the takeover of listed companies dated 17 May 2006, in effect as of 1 September 2006 and amended by Decree No. 56 of the CSRC dated 27 August 2008, governs the takeover of listed companies and related alteration of share entitlements (the “Measures”).

The Measures impose on an investor eligible for B-shares market investments and its concerted party, if any (designated hereinafter as Substantial Shareholder Report Entity (SSRE)), certain restrictions on the shareholdings of listed companies. If more than one SSRE is involved in a transaction covered by the Measures, one of these SSREs can report and submit the required information in a joint document in the name and on behalf of the other interested SSRE in accordance with a power of attorney authorising such disclosure of information.

Obligation to report threshold crossings

The Measures provide that each SSRE has an obligation to report holdings in a listed company when such holdings reach any of three levels of threshold (the “Threshold Crossing”):

  • A first level defined at 5% of the issued shares of a listed company;
  • A second level being at least 5% but less than 20%; and
  • A third level being at least 20% but less than 30%.

For all three levels of shareholding, an SSRE shall:

  1. Submit a written shareholding movement report on the alteration of the share entitlements (the “Shareholding Movement Report”) to the CSRC and the relevant stock exchange within three business days from the date on which the limit was reached; and
  2. File a copy of the Shareholding Movement Report to the CSRC agency where the listed company has its registered office (the “Agency”); and
  3. Make an announcement to the listed company and the public via at least one of the CSRC designated media.

During this period, the SSRE shall not purchase or sell shares of the relevant listed company.

Subsequently, in case of increase or decrease of the SSRE’s shareholding by another 5%, the SSRE shall comply with the above mentioned reporting obligations within a 3 working days period from the date the threshold has been reached.

If the first and second levels of shareholding are crossed (through exchange trading or contractual transfer), an SSRE shall submit to the CSRC and the relevant stock exchange a simplified Shareholding Movement Report (a “Short Form Report”) containing the following information:

  • The name and registered office of the SSRE (that is, investor and concerted parties, if any), as well as the name, place of registration and legal representatives of the SSRE (investor and concerted parties, if any) if the SSRE is a legal person;
  • The purpose of the holding, whether or not the SSRE intends to continuously increase its entitlement in the listed company within the future 12 months;
  • The name of the listed company and the type, quantity and proportion of the stocks;
  • The date on which the holding of the shares has reached or exceeded 5% of the issued shares of the listed company or such holding has increased or reduced by 5% and the method for the foresaid change;
  • A brief introduction of the purchase and selling of the shares of the aforesaid company through securities transaction at the stock exchange within six months as of the change of entitlements; and
  • Other contents as required to be disclosed by the CSRC or the stock exchange.

An SSRE that holds at least 5% but less than 20% of the listed company and is the largest shareholder of the listed company or controls the listed company shall comply with the requirements applicable to the third threshold as described below.

If the third level of shareholding is crossed or if the SSRE is the controlling entity of the listed company, a detailed Shareholding Movement Report (a “Long Form Report”, together with the Short Form Report and the Shareholding Movement Report (the “Reports”) shall be submitted by the SSRE to the CSRC and the relevant stock exchange. The Long Form Report shall contain the same information listed hereabove for the Short Form Report. In addition, it is requested to include the following information:

  • The controlling shareholders and actual controllers of the SSRE and the structure chart on the equity control relationship;
  • The prices, necessary capital, sources of capital or other payment arrangements for obtaining the related shares;
  • Whether or not there exists intra-industry competition or potential intra-industry competition between the business undertaken by the SSRE or its controlling shareholder(s) or actual controller(s) and the business of the listed company;
  • Whether or not there is any continuous affiliated transaction;
  • Whether or not corresponding arrangements have been made to avoid the intra-industry competition between the SSRE or its affiliated parties and the listed company and to keep the listed company independent if there exists any intra-industry competition or potential intra-industry competition;
  • Follow-up plans for adjustment of the assets, business, personnel, organisational structure or articles of association of the listed company for the future 12 months;
  • Important transactions between the SSRE and the listed company during the preceding 24 months;
  • Circumstances not subject to Article 6 of the Measures; and
  • Related documents that can be provided in accordance with Article 50 of the Measures.

An SSRE that is the largest shareholder of the listed company or the actual controller of the listed company shall appoint a financial consultant, in accordance with the criteria set out in Chapter II of the CSRC Decree No 54 “Administrative Measures on Financial Consultancy Business for Listed Companies’ M&A and Restructuring”, to issue verification opinions on the contents of the Reports.

An SSRE that has already disclosed information in accordance with the different Threshold Crossing requirements and falls under the obligation to report and make another announcement within six months of the last disclosure shall only disclose to the relevant authorities the updated information.

If the change in the level of shareholding is caused by a listed company reducing its capital stock, the SSRE may be exempted from the above disclosure requirements. However, if the SSRE becomes the largest shareholder or the actual controller of the listed company as a result of the capital reduction of the listed company, a Long Form Report would still need to be filed within three business days from the date of announcement concerning the capital reduction.

Sanctions

Failure to comply with the appropriate disclosure requirements or false records, misleading statements or material omissions in the Reports and/or announcement or absence of an appointed financial consultant will be subject to the following sanctions:

  • Corrective measures - the CSRC may order the SSRE to make the appropriate correction;
  • Regulatory measures - the CSRC may (i) request information and hear the relevant parties, (ii) issue warning letters or (iii) suspend or stop the acquisition.

Before taking the corrective action, the investor is not allowed to exercise the voting rights for the shares held or actually controlled.