China Securities Journal｜Stock Exchanges Revise Rules on Reviewing Major Asset Restructurings to Encourage M&As by Listed Companies

Translated from China Securities Journal

On the evening of September 24, both Shanghai Stock Exchange and Shenzhen Stock Exchange proposed their revisions to the Rules for Review of Major Asset Restructurings of Listed Companies (hereinafter referred to as the Rules) to solicit public opinions. The revisions clarify that simplified review procedures will apply to two types of transactions in major asset restructurings of listed companies. Additionally, they established negative lists to exclude certain conditions from applying simplified review procedures and specified related mechanisms.

Both exchanges stated that the revisions are in response to the Opinions on Deepening Market Reform in Mergers and Acquisitions of Listed Companies (translated title for information purpose only, hereinafter referred to as the Opinions) issued by China Securities Regulatory Commission (CSRC), which simplifies review of restructurings to make the review process more efficient and invigorate the M&A and restructuring market.

A market insider commented that the revised Rules will streamline the review process and shorten the time needed for review and registration, which is expected to unleash the M&A and restructurings market potential to lift quality and efficiency of the real economy.

Two Transaction Types Eligible for Simplified Review Procedures

The Opinions requires that "simplified review procedures should be established for restructurings. For mergers between listed companies, or when high-quality companies with a market value exceeding 10 billion yuan and an A-grade information disclosure rating for two consecutive years issue shares to purchase assets (without constituting major asset restructuring), the review process should be streamlined, and the review and registration time shortened."

To implement these requirements, Shanghai Stock Exchange and Shenzhen Stock Exchange have proposed to make corresponding adjustments to the relevant provisions of the Rules. The newly draft Rules adds a special section stipulating simplified review procedures, while making adaptive adjustments to other individual clauses.

Specifically: (1) It clarifies circumstances qualifying for simplified review procedures. There are two types of eligible transactions: first, a stock-for-stock merger between listed companies, second, high-quality listed companies issuing shares to purchase assets without constituting a major asset restructuring, whereas high-quality listed companies refer to those with a total market value exceeding 10 billion yuan and an A-grade evaluation for information disclosure quality by the stock exchange over the recent two years.

(2) A negative list for simplified review procedures is established. First, if listed companies, their controlling shareholders, de facto controllers, intermediaries, or related personnel have been subject to administrative penalties by the CSRC or disciplinary actions by trading venues within a certain period, or if they have other issues of serious dishonesty, they will be excluded from the simplified procedures. Second, if the transaction plan involves serious unprecedented situations, significant public concern, or other highly complex circumstances, it will also be excluded.

(3) Mechanisms for simplified review procedures are stipulated. For restructuring transactions that meet the conditions for simplified review, the stock exchange will accept the application within 2 working days based on the verification opinions of the intermediaries, and issue a review opinion within 5 working days after acceptance. The reviewer on stock exchanges will not conduct inquiries, and the transaction will not be submitted to the M&A and restructuring committee for deliberation.

(4) The responsibilities of all parties in the simplified review procedures are reinforced. Listed companies and related parties are required to commit that the transaction meets the criteria for applying simplified review procedures. The verification and gatekeeping responsibilities of intermediaries should be strengthened. Independent financial advisors are required to give clear, affirmative opinions on whether the transaction complies with the simplified review procedure requirements. At the same time, to prevent misuse of simplified review procedures, the stock exchanges should strengthen post-event supervision of related restructuring transactions. Any violations of the simplified review requirements will be strictly disciplined in accordance with the applicable rules.

M&A and Restructuring by Listed Companies Remain Active

This year, regulators have introduced a series of supportive policies to foster a favoring policy environment for restructurings and promote market-oriented reforms to provide strong stimulus.

Guotai Junan Securities Co., Ltd. announced plans to merge with Haitong Securities Company Limited. China CSSC Holdings Limited announced plans to merge with China Shipbuilding Industry Company Limited… more and more M&A and restructurings have come out on the A-share market under policy tailwinds.

Taking the STAR Market as an example, since the release of "STAR Market Eight Measures" in June this year, more than 20 companies on the STAR Market have announced industrial acquisition plans, a significant increase compared to the same period last year.

On Shenzhen market, since the release of Several Opinions on Strengthening Supervision, Preventing Risks, and Promoting High-Quality Development of the Capital Market, 51 companies have reported progress on major asset restructuring, a 65% increase year-on-year.

Many acquisition plans have seen progress. On August 29, Halo Microelectronics Co., Ltd. completed its acquisition of Zinitix, a company listed in South Korea. The following day, on August 30, Shanghai Sanyou Medical Co., Ltd.'s merger and restructuring plan was approved at the shareholders' meeting. On September 5, United Nova Technology Co., Ltd. released a restructuring proposal to acquire the remaining 72.33% equity of its controlling subsidiary, Xinlian Yuezhou Integrated Circuit Manufacturing (Shaoxing) Co., Ltd., for 5.897 billion yuan—marking the largest chip acquisition in the A-share market this year.

The Review Process for M&A and Restructuring Has Been Accelerated

Acceptance and review pace for restructuring projects has picked up on both exchanges.

On September 13, 3peak Incorporated, a STAR Market company, received CSRC's approval for its plan to issue convertible bonds and pay cash to purchase Shenzhen ICM-Semi Microelectronics Co., Ltd. The innovative aspects of this case have attracted market attention. For example, Shenzhen ICM-Semi Microelectronics Co., Ltd., the acquisition target, is an unprofitable company with a planned IPO. The deal features differential pricing designed to meet various needs, with the valuation method and pricing fully respecting market-driven choices. The successful execution of this transaction provides a valuable reference for companies preparing to go public, including those that withdrew IPOs without significant compliance issues, by offering insight into reasonable securitization strategies. It also serves as a useful guide for venture capital firms in selecting appropriate exit channels.

On August 2, the Restructuring Committee of Shenzhen Stock Exchange approved Suzhou Huaya Intelligence Technology Co., Ltd. (003043) to issue shares for the acquisition of a 51% stake in Suzhou Guanhong Intelligent Equipment Co., Ltd., with a transaction value of 406 million yuan.

A review by the reporter found that stock exchanges have recently accelerated and intensified their efforts to support M&A and restructuring projects of listed companies. Since June this year, the restructuring projects of Junxin Shares and AVIC Zhonghang Electronic Measuring Instruments Co., Ltd. have successfully passed review on Shenzhen Stock Exchange. Suzhou Huaya Intelligent Technology Co., Ltd.'s restructuring is the third project to clear the review process on the exchange in the past two months.

On the Shanghai Stock Exchange, Rigol Technologies Co., Ltd., a STAR Market company, received CSRC's approval for its application to issue shares and acquire a 67.74% stake in Naishu Electronic Technology Co., Ltd. on July 16, just two months after the restructuring application was accepted on May 14. This transaction marks not only the first M&A and restructuring registration since the release of the STAR Market Eight Measures but also the first registered M&A and restructuring project on the STAR Market this year.

Shanghai Stock Exchange stated that it will continue to uphold market-driven and law-based principles and support market-oriented transaction arrangements and innovative plans established in accordance with regulations. It aims to facilitate the implementation of more exemplary cases, further enhancing the role of the capital market as the main channel for M&A and restructuring cases. This will contribute to improving the quality of listed companies and strengthening the foundation for the healthy development of the market.

Shenzhen Stock Exchange stated that it will focus on supporting the development of new quality productive forces characterized by the Three News (a "new high ground" for talent development, a "new engine" for technological innovation, and a "new blueprint" for industrial upgrading) and Three Highs (high-tech, high-efficiency, and high-quality), optimizing the restructuring review mechanism, and improving the quality and efficiency of the review process. It will guide more resources toward new quality productive forces, support high-level scientific and technological self-reliance, and help foster new drivers and advantages for high-quality development.

The above information is provided for reference purposes only and does not constitute investment advice.