China Revises Rules to Ease Foreign Strategic Investment in Listed Firms

Chinese authorities recently released revised rules on foreign investors' strategic investment in listed companies in a move to encourage foreign investors to make long-term and value investments in the country.

The revised rules allow foreign natural persons to make strategic investments in listed companies, a change from the old rules that only allowed foreign legal persons or organizations to make such investments.

Capital requirement is also lowered under the new rules for foreign investors that do not become the controlling shareholders in listed firms. The latest capital requirement for them will be no less than 50 million U.S. dollars in total actual assets or no less than 300 million U.S. dollars in total managed actual assets.

The new rules add tender offers as an extra option to make strategic investments. In the past, the only available options were private placements and share transfer agreements.

For foreign investors intending to invest through the options of private placements or tender offers, they will be allowed to use shares of non-listed overseas companies as consideration shares for acquisition payment.

The new rules also eased requirements on the shareholding ratio and the lock-up period. The shareholding ratio requirement is scrapped for foreign investors making investments through private placements, while the ratio requirements for the options of tender offers and share transfer agreements are lowered to 5 percent from the previous 10 percent.

In order to encourage medium- and long-term investment, the requirement on lock-up period for acquired shares should be no shorter than a 12-month period under the new rules. This is reduced from no shorter than three years previously.

Sources: Ministry of Commerce, China Securities Regulatory Commission, State-owned Assets Supervision and Administration Commission, State Taxation Administration, State Administration for Market Regulation and State Administration of Foreign Exchange