Administrative Measures on the Split Share Structure Reform of Listed Companies

Chapter Ⅰ General Provisions

Article 1 With a view to standardizing the work relating to the split share structure reform of listed companies, boosting the reform and opening-up and steady growth of the capital market, and safeguarding the legitimate interests of investors, the Administrative Measures on the Split Share Structure Reform of Listed Companies (hereinafter referred to as the “Measures”) has been enacted, in accordance with the Company Law of the PRC, Securities Law of the PRC, Provisional Regulations on the Administration of Share Issuance and Trading, Guidelines of the State Council for Promoting the Reform and Opening-up and Sustained Development of the Capital Market and the Guidance Opinions on the Split Share Structure Reform of Listed Companies jointly promulgated by the China Securities Regulatory Commission(CSRC), State-Owned Assets Supervision and Administration Commission of the State Council, Ministry of Finance, People's Bank of China and Ministry of Commerce.

Article 2 The split share structure reform is herein defined as the process to eliminate the discrepancies in the A-share transfer system via a negotiation mechanism to balance the interests of non-tradable shareholders and tradable shareholders.

Article 3 The split share structure reform shall proceed under the principle of openness, fairness and justness and A-share market related shareholders shall carry out the reform on the basis of equal negotiation, Integrity and mutual understanding, and decision-making independency. The CSRC shall organize, guide, coordinate and accelerate the reform, in which the main players and their relevant activities will be under the surveillance of the CSRC.

Article 4 With authorization of the CSRC and in line with the Measures, the stock exchanges shall act as the front-line regulator to coordinate and direct the split share structure reform of listed companies and handle procedures related to listing of non-tradable shares.

The stock exchanges and depository & clearing companies shall formulate operation guidelines in accordance with the Measures, provide facilities for listed companies to handle issues involving their split share structure reform, and exercise continuous supervision over relevant parties involving information disclosure obligations, materialization of the undertakings made for the reform, and the sale of shares by the former non-tradable shareholders after the reform plan is implemented.

Chapter Ⅱ Operation Procedures

Article 5 All non-tradable shareholders of a listed company shall in principle reach a consensus before they propose a motion on the split share structure reform. In case of a consensus cannot be accomplished, such motion may be proposed by a shareholder/shareholders holding individually/collectively two-thirds of the non-tradable shares of the listed company. To propose a reform motion, the non-tradable shareholders shall entrust in written form the board of directors with convening of the relevant shareholders’ meeting of A-share market (hereinafter referred to as the “relevant shareholders’ meeting”) to discuss and approve the reform plan of the split share structure of the listed company (hereinafter referred to as the “reform plan”).

The convening, voting of the relevant shareholders’ meeting and disclosure of related information, etc. shall proceed in line with the rules on the general shareholders’ meeting of listed companies. The relevant Shareholders shall vote in line with the classes of their shares on the reform plan at such meeting.     

Article 6 In receipt of the written proxy from non-tradable shareholders, the board of directors of a listed company shall appoint sponsors to formulate the reform plan with the listed company and provide the sponsor opinion. The board of directors shall also appoint law firms to verify the compliance of the matters concerning the split share structure reform of the listed company and issue the legal advice.

Article 7 The board of directors and non-tradable shareholders of a listed company, the appointed sponsor and sponsor representatives, and the appointed law firm and its designated lawyers shall sign a confidentiality agreement and undertake that each party shall not divulge relevant information before the reform plan is publicly disclosed.

Article 8 The board of directors of a listed company shall authorize its appointed sponsor to consult with the stock exchanges in terms of the technical feasibility of the reform plan and the timing of the relevant shareholders’ meeting.

The stock exchange shall provide operational guidance for the split share structure reform, harmonize the reform pace and draw up the schedule of the relevant shareholders’ meetings.

Article 9 In accordance with the agreed timing set with the stock exchanges, the board of directors of a listed company shall issue an announcement on convening of the relevant shareholders’ meeting and disclose the statement on the split share structure reform, the letter of opinion of independent directors, the sponsor opinion and the legal advice. In the meantime, the board of directors shall apply for trading suspension of the listed company.

Article 10 The board of directors of a listed company shall, within 10 days after the announcement on convening of the relevant shareholders’ meeting is publicly released, assist the non-tradable shareholders in adequately communicating and negotiating with the tradable shareholders of A-share market (hereinafter referred to as the “tradable shareholders”) by such approaches as hosting an investor symposium, a press conference or an online road show, paying a visit to institutional investors and issuing a consultation paper an so on. In addition, the board of directors of the listed company shall publicly disclose its hotline, facsimile and e-mail address in order to widely solicit opinions from tradable shareholders so as to lay a broad shareholder foundation for the reform plan.

Article 11 In the event of no revision of the reform plan, after the non-tradable shareholders and tradable shareholders of a listed company go through the negotiation process as stated in Article 10 of the Measures, the board of directors shall issue a public notice and apply for trading resumption of the listed company’s shares. Nevertheless, in case the reform plan has to be revised, such documents as the statement on the split share structure reform, the letter of opinion of independent directors, the sponsor opinion, the legal advice shall be accordingly revised or further explained before the board of directors publicly disclose these documents and apply for trading resumption of the listed company’s shares.

The reform plan cannot be further revised after trading in the listed company’s shares is resumed.

Article 12 As to a listed company to hold the relevant shareholders’ meeting, its board of directors shall apply for trading suspension of the listed company’s shares from the next day of the record date for the meeting till the date when the prescribed process for the reform plan is concluded. 

Article 13 The board of directors of a listed company shall publish in the designated newspapers the announcement reminding investors of the relevant shareholders’ meeting at least twice before such meeting is held.

The board of directors is responsible for soliciting proxies for voting at such relevant shareholders’ meeting.

Article 14 The board of directors of a listed company shall arrange Internet voting, which shall last for at least three days, for its shareholders participating in the relevant shareholders’ meeting

.

Article 15 In case the non-tradable shareholders of a listed company are required to obtain the approval from the state-owned assets supervision and administration authorities before they implement the consideration plan specifically designed to balance the interests of each party in the split share structure reform (hereinafter referred to as the “consideration plan”), the listed company shall obtain and make public such approval before the internet voting for the relevant shareholders’ meeting commences.

Article 16 The reform plan of a listed company shall be approved by shareholders with at least two-thirds of voting shares at the relevant shareholders’ meeting. Such reform plan shall also be approved by the tradable shareholders owning at least two-thirds of tradable voting shares at the relevant shareholders’ meeting.

Article 17 The board of directors of a listed company shall make public the voting results of the relevant shareholders’ meeting within 2 working days after the reform plan is approved at the meeting.

The board of directors shall publicly release the implementation plan of the split share structure reform and trading resumption of the listed company’s shares according to the agreed timing set with the stock exchanges.

A listed company with the Approval Certificate for Foreign-funded Enterprise or a listed bank with foreign investment, whose reform plan is subject to the administrative review on foreign investment, shall obtain the approval from the competent authorities of the State Council before public release of the implementation plan of the split share structure reform.

Article 18 In case the reform plan is not approved at the relevant shareholders' meeting, the board of directors shall issue an announcement on the voting results of the meeting within 2 working days and apply for trading resumption of the listed company’s shares from the next day of the announcement.

If the reform plan is not approved at the relevant shareholders' meeting, the non-tradable shareholders of a listed company may, three months later, entrust again the board of directors with convening of the relevant shareholders' meeting for the split share structure reform in accordance with the Article 5 of the Measures.

Article 19 A listed company in unusual circumstances shall carry out the split share structure reform in compliance with the following principles:

(1)   Where an investigation is initiated into relevant parties suspected of insider trading with the information about the split share structure reform of a listed company, the listed company shall proceed with the reform only after such investigation is completed.

(2)   In the event of an investigation into market manipulation involving share trading of a listed company, or the shares of a listed company are heavily held by individuals or institutions in an illegal manner, the reform plan of such listed company shall proceed after relevant risks are removed

(3)   When the controlling shareholder of a listed company is investigated for suspected involvement in misappropriating interests of the listed company but the shareholder has come up with a feasible plan to solve the problem, such listed company is allowed to carry out its reform plan.

(4)   In case of other unusual circumstances, if approved by the CSRC, the listed company may carry out its reform plan.

Article 20 If, in addition to A-shares, a listed company has overseas listed foreign shares or domestically listed foreign shares as well, the A-share market related shareholders of such listed company shall negotiate for addressing issues with respect to listing of non-tradable shares on the A-share market.

Article 21 In case an overseas listed company holds non-tradable shares in an A-share company, the decision-making process for the consideration plan of such overseas listed company shall comply with its articles of association and the rules on disposal of corporate assets in the jurisdiction where the company is listed.

In case a domestically listed company holds non-tradable shares in an A-share company, the decision-making process for the consideration plan of such domestically listed company shall comply with its articles of association and the rules of the stock exchanges on disposal of corporate assets

Chapter Ⅲ Reform Plan

Article 22 To formulate a reform plan conducive to corporate development and market stability, a listed company and its shareholders shall take into account both the current and long-term interests of all shareholders and the situation of the listed company, adopting effective measures to stabilize the share price including shareholding increase by controlling shareholder, share repurchase by the listed company, predefining the terms on sale of non-tradable shares, predetermining the resale price, introducing the put warrant scheme and so on.

Article 23 Non-tradable shareholders of a listed company shall make undertakings consistent with the technical conditions for surveillance of the stock exchanges and securities depository & clearing company, or the non-tradable shareholders shall offer guarantee measures to perform their undertakings. The non-tradable shareholders shall issue a statement in written form indicating that they will faithfully perform their undertakings.

Article 24 Under no circumstances can the non-tradable shareholders transfer their shares before their undertakings are fully performed unless the parties to acquire the shares agree and are capable of fulfilling the undertakings for the non-tradable shareholders.

Article 25 The reform plan shall come up with feasible measures and the explanation thereupon to dispose of the shares held by such non-tradable shareholders as reject or are not explicit about the reform plan.

Article 26 Where the split share structure reform proceeds alongside with the asset restructuring of a listed company and the parties involving the restructuring put forward a consideration plan by injecting high-quality assets and taking over debts, etc. in a bid to improve the profitability and financial conditions of the listed company, the asset restructuring process and split share structure reform of such listed company shall comply with the Measures and relevant rules of the CSRC.

Chapter Ⅳ Sale of Originally Non-tradable shares after Reform

Article 27 The sale of originally non-tradable shares after the reform plan is completed shall comply with the following provisions:

(1)   The non-tradable shares shall not be traded or transferred within 12 months from the date of implementation of the reform plan;

(2)   A former non-tradable shareholder who holds more than 5% of the total shares of a listed company, upon expiry of the lock-up period as stated in Article 27.1 of the Measures, may sell their shares, with a maximum of 5% of the total shares of the listed company within 12 months via the trading system of the stock exchanges, and not more than 10% within 24 months.

Article 28 A former non-tradable shareholder to sell a relatively large quantity of shares of a listed company may handle the deal by means of a share placement with specific investors.

Article 29 With respect to administration on the shares held by foreign shareholders, relevant provisions shall be further enacted after the reform plan is completed.

Chapter Ⅴ Information Disclosure

Article 30 Any party obliged to disclose relevant information in the split share structure reform shall duly perform its obligation, guarantee the truthfulness, accuracy and completeness of the information disclosed and ensure there is no falsehoods, misleading statements or material omissions in the contents.

Article 31 The announcement on convening of the relevant shareholders’ meeting shall set forth the entitlements of tradable shareholders to participate in the split share structure reform and the approaches, terms and period to exercise their entitlements.

Article 32 The Statement on the split shares structure reform of a listed company shall comprise the following particulars:

(1)   The composition and all previous changes in the equity structure of the listed company since its incorporation;

(2)   The list of non-tradable shareholders who propose the reform motion, the number of the shares they hold in the listed company and the shareholding proportion, and an explanation for whether or not their shares involve ownership disputes, pledge or being frozen;

(3)   The statement of non-tradable shareholders on the number of the shares they hold in the listed company, their shareholding proportion and the affiliated relations amongst these non-tradable shareholders;

(4)   The statement of non-tradable shareholders and the de facto controller of the non-tradable shareholders owning over 5% shares of the listed company, in relation to their holdings of the tradable shares of the listed company in the last 2 days before the board of directors discloses the statement on the split share structure reform and their sale and purchase of the listed company’s tradable shares in the previous 6 months;

(5)   Particulars of the reform plan;

(6)   The statement of non-tradable shareholder on the guarantee measures to perform their undertakings;

(7)   Potential influence of the split share structure reform on the corporate governance of the listed company;

(8)   Potential risks involving the split share structure reform and the corresponding resolution plan;

(9)   The list of the sponsor and law firm appointed for the split share structure reform and their contact information;

(10)              The Statement of the appointed sponsor and law firm on their holdings of the tradable shares of the listed company in the last 2 days before the board of directors discloses the statement on the split share structure reform and their sale and purchase of the listed company’s tradable shares in the previous 6 months;

(11)              Other issues required to be specified.

Article 33 The sponsor’s opinion shall contain the following contents:

(1)   Whether or not the non-tradable shares of the listed company involve ownership disputes, pledge or being frozen and the influence of the foregoing circumstances on the implementation of the reform plan;

(2)   The assessment of the influence on tradable shareholders’ interests as the reform plan is implemented;

(3)   Conclusion on the verification of the documents relating to the split share structure reform;

(4)   A feasibility study on the relevant undertakings in the reform plan;

(5)   Explanation for whether or not there exists any circumstance in which the sponsor cannot duly perform its duties;

(6)   Other particulars the sponsor deems necessary to be specified;

(7)    The sponsor conclusion and the grounds.

Article 34 The letter of opinion of independent directors shall provide an explanation for the influence of the reform plan on the improvement of the corporate governance structure, protection of shareholders’ legitimate interests, long-term development and other material issues concerning the listed company.

Article 35 The announcement on the relevant shareholders’ meeting, the voting results of the relevant shareholders’ meeting, the letter of proxy solicitation, the abstract of the statement on the split share structure reform shall be published in the designated newspapers.

The statement on the split share structure reform, the letter of opinion of independent directors, the sponsor’s opinion, the legal advice, the implementation plan of the reform shall be disclosed in full on the website of the listed company and the website of the stock exchange where its shares are listed.

The stock exchanges shall arrange a column on their website to provide free information disclosure service for the split share structure reform.

Article 36 In the event of a shareholding reduction or increase in the split share structure reform of a listed company, which causes changes in the total number of shares held or controlled by shareholders of the listed company, such reform plan shall proceed in accordance with the Measures for Administration of Takeover of Listed Companies, Administrative Measures on Information Disclosure for Changes in Shares Held by Shareholders in Listed Companies and the Measures. In case of a tender offer triggered by the split share structure reform, the parties concerned may apply for exemption from the tender offer obligation.

Article 37 A listed company shall publish a report on equity structure change following the split share structure reform in the designated newspaper within 2 working days after it goes through the registration procedures for alteration with respect to listing of non-tradable shares.

Article 38 A listed company shall issue a public notice three days prior to the expiry of the lock-up period of the shares originally held by non-tradable shareholders after the reform plan is completed.

Article 39 When the shares sold by a former non-tradable shareholder who holds or controls over 5% of the total shares of a listed company through the trading system of stock exchanges reach every 1% of the total shares, the listed company shall issue a public notice within 2 working days immediately after occurrence of such case while the foregoing shareholder may proceed to sell the shares.

Chapter Ⅵ Intermediaries

Article 40 Any intermediary appointed to provide professional services in the split share structure reform shall conform to the laws and regulations, perform faithfully their duties, bear fiduciary and diligence obligations, safeguard the interests of the listed company and the shareholders, and shall not seek illegitimate interests for the intermediary itself or for any individual by their roles in the split share structure reform.

Article 41 The sponsor shall perform the following duties:

(1)   to assist in formulating the reform plan;

(2)   to conduct due diligence on the reform plan;

(3)   to verify the documents involving the reform plan;

(4)   to comment on the competence of the non-tradable shareholders to implement the consideration plan and fulfill their undertakings;

(5)   to issue the sponsor opinion;

(6)   to assist in implementing the reform plan;

(7)   to assist in drafting and enforcing the measures to stabilize the stock price;

(8)   to continuously inspect the parties in respect with their fulfillment of undertakings.

Article 42 A sponsor is disqualified from acting as a sponsor for a listed company in the split share structure reform, if it bears the following affiliated relations with the listed company, the major shareholders, de facto controller, major related parties of the listed company:

(1)   The shares collectively held by the sponsor, its major shareholders, de facto controller and major related parties in the listed company exceed 7% of the total shares;

(2)   The listed company, its major shareholders, de facto controller and major related parties hold or control collectively over 7% of the sponsor’ shares.

(3)   The sponsor representatives, directors, supervisors, manager and other senior executives of the sponsor may not duly perform the sponsor duties in case of such circumstances as they own shares or hold a post in the listed company

Article 43 A sponsor shall designate a sponsor representative to deal with the sponsor tasks related to the split share structure reform of a listed company. Such sponsor representative shall not simultaneously undertake the sponsor tasks for the split share structure reform of other listed companies before the voting procedures for the relevant shareholders’ meeting are completed.

Article 44 To assume corresponding legal liabilities, the legal representative and the sponsor representative shall autograph the sponsor opinion.

Article 45 The law firm and the signatory lawyers to the legal advice shall perform the following duties:

(1)   to verify the compliance of the parties participating in the split share structure reform;

(2)   to verify the legal affairs involving the reform plan;

(3)   to verify the legal documents involving the reform plan;

(4)   to comment on the compliance of the contents of the reform plan and its implementation procedures;

(5)   to issue the legal advice.

Article 46 The appointed law firm and the signatory lawyers to the legal advice are prohibited from such relations as may possibly cause them not to duly perform their duties in the split share structure reform of the listed company.

Article 47 The sponsor and its sponsor representatives, the law firm and the signatory lawyers to the legal advice shall ensure there are no falsehoods, misleading statements or material omissions in their sponsor opinion or legal advice.

Chapter Ⅶ Disciplinary Actions and Legal Liabilities

Article 48 Any entity or individual is prohibited from securities transaction with insider information, market manipulation or fabricating and spreading false information in the split share structure reform. The CSRC may, in accordance with the laws, investigate the foregoing cases and mete out punishment to the parties concerned. If the circumstances are serious and crimes are likely committed, such cases shall be investigated for criminal liabilities by judicial organs.

Article 49 The stock exchanges shall impose a special inspection on unusual transactions in the split share structure reform to rein any actions involving insider dealing and market manipulation in a timely manner and report to the CSRC when the stock exchanges are aware of such actions.

Article 50 The shareholders, who fail to fulfil their undertakings in the split share structure reform, are liable to a public censure of the stock exchanges. The CSRC will order such shareholders to make a correction and will take relevant disciplinary actions. If the legitimate interests of other shareholder are infringed in such case, the shareholders shall bear relevant legal liabilities.

Article 51 Where a sponsor and its sponsor representatives are found with falsehoods, misleading statements or material omissions in their documents for the split share structure reform or fail to perform the due diligence and continuous inspection obligations, they will be publicly censured by the stock exchanges and the CSRC will order such sponsor and sponsor representatives to make a correction. If the circumstances are serious, such sponsor and sponsor representatives will be removed from the official list of sponsors and sponsor representatives respectively.

Article 52 Where the appointed law firm and the signatory lawyers to the legal advice are found with falsehoods, misleading statements or material omissions in their legal advice for the split share structure reform, or fail to perform their verification duties, the CSRC will order them to make a correction. If the circumstances are serious, the CSRC may suspend acceptance of the legal documents on securities related businesses issued by such law firm and lawyers.

Article 53 The CSRC may order a correction by a listed company, its non-tradable shareholders, fund managers, securities companies, insurance companies, asset management companies which wrongfully interfere in decision-making of other investors, or manipulate the voting results of the relevant shareholders’ meeting, or involve illegitimate interest swap. If the circumstances are serious, the individuals principally held responsible for the foregoing misconducts may be banned from the market and shall not, in a certain period or permanently, act as the senior executive of any listed company or securities institution.

Chapter Ⅷ Supplementary Provisions

Article 54 The power to interpret and revise the Measures shall remain with the CSRC.

Article 55 The Measure shall come into effect as of the date of promulgation. The Circular on Issues concerning the Pilot Reform of the Split Share Structure Reform of Listed Companies (No.32 [2005] CSRC) and the Circular on Issues concerning the Pilot Reform of the Split Share Structure Reform of the Second Batch of Listed Companies (No.42 [2005] CSRC) shall be repealed on the same date.

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.)