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Our Ref: No. 32 [2005] CSRC
To: Listed Companies, Shareholders of Listed Companies, Sponsors, China Securities Depository & Clearing Co., Ltd.
With a view to carrying out the Guidelines on Promoting Reform, Opening-up and Steady Development of China's Capital Market (No.3 [2004] the State Council), (the “Guidelines”) and addressing the problem of listed companies split share structure, the pilot reform of listed companies split share structure (the “Pilot Reform”) is now formally initiated. The Pilot Reform shall be carried out in accordance with the basic principle set out in the Guidelines---- “Approaches towards this problem (listed companies split share structure) shall conform to the way the securities market works, promote the smooth functioning and development of the securities market, and provide effective protection for investors, especially, the public investors”. Practice policies for the Pilot Reform include Sustained Development of Securities Market, Fairness and Uniformity of Rules, Adequate Negotiation in Developing the Reform Plan, Approval for the Reform Plan by Floating Shareholders, and Gradual Implementations. This Circular provides the following procedures and requirements that should be followed in conducting the Pilot Reform:
1. To maintain the smooth functioning of the securities market and protect the interests of investors, especially those of public investors, the China Securities Regulatory Commission (the CSRC) shall select the listed companies (the Pilot Company) that are allowed to undertake the Pilot Reform taking into consideration the attitude of listed companies shareholders towards the Pilot Reform as well as sponsors’ recommendations. Shareholders of the selected Pilot Company may formulate specific approaches towards the split share structure problem independently.
2. The Pilot Company shall make timely, true, precise, and full disclosure of information on the Pilot Reform, and apply for share trading suspension or resumption at appropriate time. Specifically, the Pilot Company shall:
2.1 make an immediate public announcement and apply for share trading suspension upon the event that the formal decision to undertake the Pilot Reform is reached;
2.2 publish documents relating to the Pilot Reform within two working days upon passing of the Board resolution on the reform plan, i.e. Resolution of the Board of Directors, Opinions of Independent Directors, Prospectus for the Pilot Reform, Opinions of the Sponsor, Notice of the Extraordinary General Meeting in connection with the Pilot Reform (the EGM), and apply for share trading resumption. The Pilot Company shall apply for share trading suspension during the period as of the record date for the EGM until the release of the Result of the EGM.
2.3 publish the Result of the EGM within 2 working days and apply for share trading resumption upon passing of the resolution on the reform plan at the EGM. The Pilot Company may apply to the stock exchange to extend the trading suspension on account of the particular circumstances of the Pilot Reform.
3. Necessary measures as follows shall be taken to enable participation and exercise of rights by floating shareholders in the EGM:
3.1 Informing floating shareholders of their rights, the time, conditions and forms for exercise of rights in the Notice of the EGM
3.2 Issuing notices of the EGM for at least three times prior to the EGM, and availability of on-line voting facilities
3.3 Solicitations of proxies with respect to the reform plan by independent directors
3.4 Majority votes required for passing the Board resolution on the reform plan-- two-third majority of votes cast by shareholders voting at the EGM, and a two-third majority of votes by floating shareholders voting at the EGM
4. The Board of the Pilot Company shall engage a sponsor to assist in formulating a reform plan, conduct due diligence, review documents, provide sponsor’s opinions, and assist in the implementation of the reform plan. The sponsor shall designate at least 3 sponsor representatives for the purpose of the Pilot Reform.
5. Non-floating shareholders of the Pilot Company shall undertake to float their non-floating shares that are granted the listing status (the Shares) in phases, and shall perform disclosure obligations during the course.
5.1 Non-floating shareholders of the Pilot Company shall undertake not to sell or transfer the Shares for a 12-month period from the date their non-floating shares are granted listing status
5.2 Non-floating shareholders who hold 5% or more stakes in the Pilot Company shall undertake to limit the number of the Shares disposed through the secondary market to 5% of the total share capital of the Pilot Company for 12 months and 10% for 24 months following expiry of the12-month trading restriction period set out in paragraph 5.1 of the Circular
5.3 A public announcement shall be made within 3 working days upon the event that the number of the Shares disposed through the secondary market reaches 1% of the total share capital of the Pilot Company. Disposal of the Shares may proceed during the announcement period.
6. The approval of competent authorities for the disposal of non-floating shares of the Pilot Company, where applicable, shall be obtained and published prior to the convening of the EGM.
7. The stock exchange and securities depository & clearing company shall establish operating guidelines for the Pilot Reform respectively in line with the requirements in the Circular, and handle the work relating to the listing of the Shares.
The stock exchange shall conduct a compliance review on the Pilot Reform documents submitted by the Pilot Company, and exercise continuous supervision over disclosures in connection with disposal of the Shares by the ex-non-floating shareholders of the Pilot Company.
8. Directors and shareholders of the Pilot Company shall, in carrying out the Pilot Reform, act with integrity and undertake that, there is no fraud, misleading statements, or material omissions in their disclosures.
Listed companies shall neither undertake the Pilot Reform unless authorized to do so, nor publish misleading information in connection with the Pilot Reform, and shall make prompt clarification on false media reports.
9. The Pilot Reform sponsor and the sponsor representatives shall exercise diligence in execution of their duties and responsibilities related to the Pilot Reform, and undertake that there is no fraud, misleading statements or material omissions in the Sponsor’s Opinions.
10. The CSRC supervises over the activities and works related to the Pilot Reform, and will take administrative actions against senior management of the Pilot Company, the sponsor and its representatives involved in the Pilot Reform, and listed companies for violation of the requirements set out in the Circular, and abuse of the Pilot Reform for insider trading, market manipulation, or other fraudulent securities transactions. Criminal procedures will be initiated against suspected criminal offences.
11. The Circular shall come into force as of the date of promulgation.
The China Securities Regulatory Commission
(This English version by Shenzhen Securities Information Co., Ltd. is for your reference only. In case any discrepancy exists between the Chinese and English context, the Chinese version shall prevail.)
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