Revision Note On “Shanghai Stock Exchange Provisions On Management Of Raised Funds Of Listed Companies”

To further standardize the management and utilization of funds raised by the companies listed on the Shanghai Stock Exchange (SSE), improve the usage efficiency of the raised funds and protect the legitimate rights and interests of the investors, the SSE has revised the “SSE Provisions on Management of Raised Funds of Listed Companies” (the "Provisions") and formulated the “SSE Measures on Management of Raised Funds of Listed Companies (Revised in 2013)” (the “Measures”). The issues concerning the revision are specified as follows:

I. Backgrounds and Objectives of the Revision 

The Provisions currently in effect in the SSE was formulated in accordance with the “Notice of the China Securities Regulatory Commission (CSRC) on Further Regulating Utilization of Funds Raised by Listed Companies” (Zheng Jian Gong Si Zi [2007] No. 25 Document), and promulgated and put into effect in June 2008. The revision to the Provisions was mainly based on the following two issues of concern: 

First, to keep consistent with the new provisions of the CSRC on the management and utilization of the raised funds. In December 2012, the CSRC promulgated the “No. 2 Regulatory Guidelines of Listed Companies: Regulatory Requirements for Management and Use of Listed Companies’ Raised Funds” (CSRC Announcement [2012] No. 44 Document), which was put into effect as of the date of the promulgation. The No. 2 Regulatory Guidelines introduces new regulatory requirements for the management and utilization of funds raised by the listed companies, and abolishes the “Notice on Further Standardizing the Utilization of Funds Raised by Listed Companies”. Therefore, it is necessary to make corresponding revisions to the Provisions, in a bid to keep consistent with the No. 2 Regulatory Guidelines. 

Second, to add the provisions on the management and utilization of the excessively raised funds. To address the problems existing in the management and utilization of the excessively raised funds of the listed companies, the SSE issued specially the “Notice on Problems Concerning Management and Utilization of Funds Excessively Raised by Listed Companies” in October 2011 in a bid to impose regulation. In August 2012, on the basis of the notice, the SSE released the “Memorandum No. 7 on the Work of Routine Information Disclosure – Utilization and Management of Funds Excessively Raised by Listed Companies” (the “Memorandum”), making further provisions on the management and utilization of the excessively raised funds. To facilitate the use and implementation of the listed companies, the revision has incorporated the contents of the Memorandum in the Measures and kept consistent with the relevant provisions of the No. 2 Regulatory Guidelines. 

II. Main Revised Contents of the Provisions 

In accordance with the new regulatory requirements of the No. 2 Regulatory Guidelines for the management and utilization of the funds raised by listed companies, the revised contents are as follows: 

(I) Further relaxing the management and utilization of the idle raised funds to improve the efficiency in utilizing the raised funds

1. Expanding the usages of the idle raised funds. The existing Provisions only allow the temporarily idle raised funds to be used in temporarily supplementing the liquidity while the other usages are subject to the fulfillment of the relevant procedures for changing the usage of the raised funds. In order to expand the channels for investing the idle raised funds and improve the efficiency in using the idle raised funds, the revised Measures not only allow the temporarily idle raised funds to be used in temporarily supplementing the liquidity but also allow the temporarily idle raised funds to implement the cash management and invest in the products meeting the relevant requirements such as high degree of safety and sound liquidity, stipulating the corresponding decision-making processes and the requirements for information disclosure.

2. Simplifying the process of using the idle raised funds in temporarily supplementing the liquidity. In accordance with the existing Provisions, if the listed companies use the idle raised funds in temporarily supplementing the liquidity, the sum should not exceed 50% of the net amount of the raised funds every time, and the use of more than 10% of the sum of the raised funds should be discussed and approved by the Shareholders’ Meetings where the voting by means of network should be provided. The revision has eliminated the restrictions on the sum when the listed companies use the idle raised funds in temporarily supplementing the liquidity, and simplified the process of the listed companies’ internal decision making by stipulating that any sum is only subject to the deliberation and approval of the board of directors of the listed companies as well as to the opinions given by the independent directors, the board of supervisors and the sponsor institutions, without the need for submission to the Shareholders’ Meetings for discussion. 

3. Extending the period of using the idle raised funds in temporarily supplementing the liquidity. The current Provisions require that the single period should not be longer than 6 months for the listed companies to use the idle raised funds in temporarily supplementing the liquidity. The revised Measures have extended the period from 6 months to 12 months. 

(II) Further standardizing the management and utilization of the excessively raised funds

The Memorandum does not limit the sums of using the excessively raised funds in permanently supplementing the liquidity and repaying the bank loans every 12 months. The revised Measures, on the basis of incorporating the relevant contents of the Memorandum and in accordance with the provisions of the No. 2 Regulatory Guidelines, further regulate the management and utilization of the excessively raised funds, mainly adding the following contents: (1) the listed companies may use the excessively raised funds in permanently supplementing the liquidity or repaying the bank loans, but the accumulated used sum every 12 months should not exceed 30% of the total excessively raised funds, and listed companies should make the commitment not to make high risk investments or provide financial aid for others within 12 months after supplementing the liquidity; (2) the use of the excessively raised funds in permanently supplementing the liquidity or repaying the bank loans should be discussed and approved by the boards of directors and the Shareholders’ Meetings with the means of network voting provided for the shareholders, and the independent directors, the board of supervisors and the sponsor institutions should give clear opinions of approval. The listed companies should report to the SSE and make the announcements in 2 trading days after the meeting of the directorate. 

(III) Amendments to other relevant articles

1. Extending the term of signing a three-party supervision agreement on special accounts deposit of raised funds. It is required in the existing Provisions that a listed company should sign a three-party supervision agreement on special accounts deposit of raised funds with the sponsor and the commercial bank where the raised funds are deposited within 2 weeks after the raised funds are received in the account. The revision has extended the term of signing the three-party supervision agreement from two weeks to one month. 

2. Giving the term of replacing raised funds. The existing Provisions have made stipulations on relevant issues of listed companies’ planning to replace self-raised funds previously invested by them with raised funds, but haven’t nailed down the term for the replacement. The revision has specified that a listed company could replace self-raised funds with raised funds within 6 months after the raised funds are received in the account. 

3. Further specifying the requirement for disclosing the deposit and use of annual raised funds. The existing Provisions only require that a sponsor should issue a special examination report on deposit and use of the relevant listed company’s annual raised funds. The revision has added the requirement for relevant accounting firm’s authentication and the contents related to the disclosure of the “Special Report on Raised Funds”. That is, a listed company should engage an accounting firm during its annual audit to issue an authentication report on deposit and use of raised funds, which should be submitted to the SSE when disclosing its annual report and disclosed on the SSE website. If idle raised funds are used to invest in products in the current term, the relevant listed company should disclose in the “Special Report on Raised Funds” the income in the current reporting period, the investment shares, signing parties, product names, and terms at the end of the period.