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Listed companies' disclosure of outward investment and significant contracts of daily operation will be further regulated. In light of the regulations, the Shanghai Stock Exchange (SSE) has recently finalized the "No. 17 Format Instruction on Temporary Announcements of Listed Companies -- Announcement on Significant Contract". Besides, it has also modified the former "No. 6 Format Instruction on Temporary Announcements of Listed Companies -- Announcement on Outward Investment (Entrustment Investment Included)" and renamed it the "No. 6 Format Instruction on Temporary Announcements of Listed Companies -- Announcement on Outward Investment". The listed companies are required to follow these two instructions to be issued today in due form.
According to an SSE official, the "No. 17 Format Instruction" is customized for the market development and the influence of the recent significant contracts of listed companies on their performance and stock prices. Upon an analysis on the listed companies' semi-annual reports of 2007, the SSE found out that the investment income of non-financial listed companies in the first half of 2007 was about RMB30 billion in total. Among them, the investment income from securities market accounts for 5% to 6% of these companies' total profits. This is the major reason that the SSE decided to modify the former "No. 6 Format Instruction". In addition, the market sees a surging number of listed companies conducting cross holding or taking stakes in such financial institutions as listed or non-listed banks and insurance companies. To regulate their disclosure of outward investment, the SSE made a decision to make supplementation and modification to the old instruction.
According to the new instructions, listed companies, who disclose significant contracts, should include such essential alerts as contract types, conditions under which contracts take effect, contract terms and contracts' influence on their current-term performance. It is necessary to clarify the imperative approval procedures for contracts to be effective, such as approval of Shareholders' Meeting, or approval of government authorities, or filing with the authorities. Listed companies should detail the contract parties, the specific amount of business in the recent 3 fiscal years, and the proportion to the total annual amount of such business category. The analysis on contract parties' fulfilling capability should define whether government credit or credit support from financial institutions is needed. Besides, it should also include the manufacturing and technical capability. Moreover, it is necessary to disclose the contract fulfillment's influence on the listed companies' performance in the current and future fiscal years. In addition, the influence on their business independence should be disclosed. Also, it's vital to announce the progress of significant contracts, including but not limited to the effectiveness, major risks in the fulfillment of contracts, contract termination or ending ahead of schedule, and contract fulfillment.
In accordance with the amended "No. 6 Format Instruction", listed companies, which take stakes in or control banks, securities companies, insurance companies, fund companies, trust companies, futures companies, bonding companies or pawnshops, should disclose whether they are qualified for subscribing shares in financial institutions, introduce the business types, the total capital, net capital, business income and net profits of the financial institutions (non-listed companies) in the recent one year and period. Furthermore, the board of directors is supposed to have the final say on the financial institutions' operating capability, internal control and corporate governance.
The stake-taking risk disclosure should include possible risky factors in finance, market, technology, environment, project management, organization and execution, as well as the risks in uncertainty of approval by relevant authorities. In particular, risks in the financial institutions' operating capability, internal control and corporate governance should be analyzed. Besides, if listed companies' stake-taking companies publicly offer shares, they should promptly disclose the progress including but not limited to entering into tutoring period, completion and inspection, application acceptance and approval by the securities regulatory commission, submitting files for examination by issuance examination commission and the commissions' opinions after examination.
