.jpg)
The Shanghai Stock Exchange (SSE) today issued the "Business Guidelines for the Information Disclosure for the Major Asset Restructuring of Listed Companies", and answered the relevant questions.
Q1: Can you brief us on the main background and considerations of the revision?
A: In recent years, the China Securities Regulatory Commission (CSRC) has continued to strengthen the market-oriented reform of merger and acquisition (M & A) and reorganization, encourage the listed companies to implement the market-based M & A and reorganization, and improve the quality of the listed companies. Against this background, a series of policy adjustments to major asset restructuring has been made in terms of simplifying the information disclosure, optimizing the standards and improving the efficiency. The CSRC recently revised the "Measures for Administration of Major Asset Restructuring of Listed Companies" (the "Restructuring Measures" for short), which has made the rules for M & A and reorganization more adaptive and inclusive, and further supported the listed companies in cracking their bottlenecks in main business and improving quality through M & A and reorganization.
Since its release, the SSE’s "Business Guidelines for Information Disclosure and Trading Suspension and Resumption for the Major Asset Restructuring of the Listed Companies" has effectively regulated the M & A and restructuring of the listed companies. Against the above-mentioned background, the SSE has recently studied, revised and improved the business rules in an all-round manner after fully evaluating the market changes and related policy adjustments in recent years, mainly on the basis of the following two considerations.
First of all, the requirements for information disclosure for reorganization have been greatly simplified to implement the market-oriented reforms in M & A and reorganization and improve the efficiency of M & A and reorganization. In recent years, the CSRC has made great efforts in canceling and simplifying the administrative licensing, successively introducing a series of measures such as the pilot program of targeted convertible bonds, simplifying requirements for disclosing reorganization plans, the "fast track for small-amount trading" review mechanism, and relaxing the control of the supporting raised funds, so as to encourage the market-oriented M & A and stimulate market vitality. In order to further implement the requirements of the CSRC for the market-oriented reform in the M & A and reorganization, the main purpose of the revision is to greatly simplify the requirements for information disclosure and step up the efficiency of M & A and reorganization. Regarding the reorganization plans, after the revision of the " No. 26 Standards for Contents and Formats of Information Disclosure of Companies with Publicly Offered Securities – Major Asset Restructuring of Listed Companies” (the “No. 26 Standards” for short), the information disclosure for the reorganization plans has been simplified significantly, and implemented in practice. In the revision, the format guidelines for the plans were greatly simplified accordingly to keep consistent with the "No. 26 Standards" generally. In terms of trading suspension, since the implementation of the “Business Guidelines for Trading Suspension and Resumption for the Listed Companies Planning for Major Events” (the “Trading Suspension and Resumption Guidelines” for short), the concept of staged disclosure has gradually been recognized by the market. In this regard, it is feasible to further highlight the principle of staged disclosure by giving the companies more flexible and independent space for information disclosure. Particularly, companies that carry out reorganizations which are not required to get licensed may have more flexibility concerning the disclosure of the pre-plans, informative announcements and progress.
Secondly, through continuous and precise regulation, more attention is paid to the implementation of M & A and reorganizations, so as to support the listed companies in improving the quality. In recent years, with the CSRC continuously strengthening the market-oriented reforms in M & A and reorganization, restructuring based on the integration of the same industry and between upstream and downstream enterprises has become the main theme in the market. The impulsive cross-border reorganizations and me-too cross-border reorganizations prevailing in previous years have gradually been reduced, and the market expectation for and reaction to reorganization have also been more rational. At the same time, the negative effects of a few earlier M & A and reorganizations have been revealed. They include the decline in performance, the out-of-control of the underlying assets and the failure to exercise the performance compensation, which seriously harm the interests of listed companies and investors. For this reason, it is necessary to intensify continuous regulation and precise regulation, and focus the regulatory resources on the entire chain of M & A and reorganization. In the "Measures for Reorganization" newly revised by the CSRC, the regulation on performance commitments for reorganization has also been cemented. The current revision place greater emphasis on the effectiveness of reorganization and integration, improves the continuous information disclosure requirements for integration progress, commitment fulfillment, goodwill impairment, realization of profit forecasts and other matters after the implementation of the reorganization, and tightens the obligation of independent financial advisers for continuous supervision, with the aim of guiding and urging the companies to focus on the effectiveness of reorganization and integration by enhancing the continuous information disclosure, and improving the quality of listed companies. At the same time, the revision continues to guide the listed companies in implementing the M & A and reorganizations oriented toward the industries and the real economy. If the cross-border M & A is implemented shortly after the listing, the information should be fully disclosed.
In addition, considering that the original restructuring guidelines were issued in 2015 and the market environment has changed a lot, certain modifications and improvements have been made in the current revision to the framework and structure of the original guidelines, and some parts that have been regulated in other special business rules have been deleted. For example, as the trading suspension and resumption for reorganization planning has been directed to the “Trading Suspension and Resumption Guidelines”, only some of the main provisions have been retained in the current revision, with the focus on improving the pertinence and readability of the rules. At the same time, the existing rules have been improved to ensure the continuity.
Q2: We noticed that in the current revision the original restructuring guidelines have been greatly simplified. Can you brief us on the main contents that have been simplified in the revision?
An important keyword in the revision of the reorganization guidelines is "simplification". By significantly simplifying the requirements for information disclosure, the information disclosure costs for the companies have been reduced so as to improve the efficiency of the M & A and reorganization. Compared with the original guidelines, some independent chapters have been deleted, the disclosure requirements for the reorganization plans have been remarkably simplified, and efforts have been made in effective connection with the “Trading Suspension and Resumption Guidelines” and other rules. The following four aspects are mainly involved.
First of all, the format guidelines for the reorganization plans have been simplified. According to the revised "No. 26 Standards", the disclosure requirements for reorganization plans have been substantially reduced and simplified. The revised requirements for the plans focus on the disclosure of core elements such as major counterparties and the underlying assets of the transactions, and provide some flexibility for the intermediaries in the verification requirements, as it is no longer a mandatory requirement to disclose the estimated value or the proposed price of the underlying asset, as well as defects in ownership, project approval for environmental protection, horizontal competition, related party transactions and other contents.
Secondly, the connection with the business guidelines for trading suspension and resumption has been achieved. The revised "Reorganization Guidelines" no longer includes the separate parts of reorganization planning and trading suspension and resumption, but instead requires in principle the listed companies to implement the trading suspension prudently. It is also stipulated that the business of trading suspension and resumption for reorganization shall be handled in accordance with the related provisions of the “Trading Suspension and Resumption Guidelines” of the SSE.
Thirdly, the principle of staged disclosure has been stressed. The current revision provides that if a listed company plans an approval-exempt reorganization, it can, in accordance with the principle of staged disclosure, make an informative announcement on planning a major asset reorganization and carry out staged disclosure of the actual reorganization progress in the following process of advancing the transaction. At the same time, it is required that a listed company should issue a progress announcement at least every 30 days from the disclosure of the reorganization matter for the first time to the date before the issuance of the notice on the shareholders meeting on reviewing the reorganization plan; if major progress or a major change occurs in the reorganization, the company shall immediately fulfill its obligation for information disclosure.
Fourthly, the text structure has been improved. The original Chapter 2 "Reorganization Rumors and Clarifications" is deleted, and only some important provisions are retained. The listed companies that have not yet begun planning but have intentions to reorganize are required to strictly fulfill their confidentiality obligations and not to replace the confidentiality obligations with trading suspension. At the same time, in consideration of the special provisions on insider registration and reporting, and the completion of memorandums on transaction progress, etc., the original Chapter 4 "Transaction Verification" is deleted, and it is required that the listed companies and related parties should make effective efforts in insider information management in accordance with relevant provisions. With the structure improved, the chapters are sorted into reorganization planning, reorganization termination, reorganization approval and implementation, and continuous information disclosure after reorganization implementation, which is more in line with the general order of advancing the reorganization, providing convenience for the companies in application. In addition, the number of the attachments to the reorganization guidelines has been reduced from the original 6 to 4, with the requirements for the announcement formats that are not compatible with the trading suspension and resumption guidelines removed.
Q3: We notice that the current revision highlights information disclosure requirements for reorganization commitments and effects of reorganization. Can you brief us on the new contents?
A: Another important characteristic of the current revision is to highlight the information disclosure requirements for commitments to the reorganization performance and the effectiveness of reorganization. The move mainly targets the problems in practice such as inadequate fulfillment of commitments on performance and unsatisfactory synergy effects of M&A and reorganization. By strengthening continuous supervision and precise supervision and improving the requirements for information disclosure, the relevant parties will be urged to prudently demonstrate whether the performance commitments can be realized, effectively focus on the effect of M&A and reorganization, and give full play to the important role of M&A and reorganization in improving the quality of listed companies.
First of all, in the revised "Reorganization Measures", the contents of information disclosure for reorganization commitments have been added. Recently, the "Reorganization Measures" revised by the CSRC highlights the supervision on commitments to reorganization performance, and provides for the regulatory constraints on overdue, unfulfilled commitments or breach of commitments. In the revised reorganization guidelines, the contents of disclosure of commitment-related information have been added accordingly. The information disclosure requirements are specified separately for the circumstances upon the signing of the commitment agreement, during the commitment period, after the fulfillment of the commitment and upon the failure to fulfill the commitment. When the agreement is signed, the disclosure of the information on whether the performance commitments can be realized is highlighted, with the requirements for full disclosure of whether the compensation agreement clear and feasible. It is also required that the fulfillment risks should be carefully examined and the board of directors and the financial consultants should thoroughly demonstrate the feasibility. During the commitment period, the disclosure of progress is stressed and it is required that the companies should disclose the fulfillment of commitments in their annual reports. When the commitments are fulfilled, it is required to release the announcement on the completion of the commitments. In the event of inability to fulfill the agreement, the listed company is required to timely disclose the specific circumstances of the counterparty’s overdue fulfillment, failure in fulfillment or breach of commitments and related compensation, and provide corresponding solutions. At the same time, the responsibility of the financial consultants for continuous supervision is emphasized, and the financial consultants are required to impel all parties to effectively fulfill their commitments, and promptly report the major suspected financial frauds or significant risks, while urging related parties to provide solutions.
Secondly, the continuous information disclosure for profit forecast and goodwill impairment has been clearly required. The revised version further specifies the information disclosure requirements for such issues as performance compensation and goodwill impairment that are of concern to all parties after the reorganization. If a listed company discloses a profit forecast report or if the counterparty makes a performance commitment in a restructuring transaction, it shall separately disclose the achievement of the performance in the annual reports during the performance commitment period, and a special audit opinion on the report shall be issued by the accounting firm. If goodwill arises from a restructuring transaction, important information related to the impairment of goodwill shall be disclosed in the annual reports in accordance with the "Accounting Standards for Business Enterprises" and other provisions.
Thirdly, is the regular disclosure of the progress in integration of underlying assets of the reorganization is added. In the revision the disclosure of the integration progress is added so as to urge relevant parties to implement the integration plan on schedule and carefully evaluate the effects and risks. Within at least 3 years after the implementation, the listed company should disclose the specific progress of reorganization and integration in its annual reports, including the specific measures for integration, whether the implementation is in line with the plan, the confronted integration risks and the evaluation of periodic effects etc. The independent directors and financial advisers should provide opinions on the effects of the integration.
At the same time, the revision also recognizes some existing practices in reality. For example, the requirement for the “cooling-off period” after the termination of the reorganization has been stipulated, as the companies that have the reorganization terminated after the disclosure of the plan or during the trading suspension shall promise that no reorganization will be planned in at least the following 1 month. For another example, according to the requirements of the CSRC, the trading shall be suspended for 1 day for the meeting of the M&A and reorganization committee, and the requirements for disclosure of the audit results have been refined.
As stipulated in the “Notice on Issuing the General Business Rules and the Catalogue of Guidelines for the Continuous Regulation of the Listed Companies on the SSE STAR Market” released earlier by the SSE, the unrevised “Reorganization Guidelines” is applicable to the SSE STAR Market. Therefore, the revised guidelines will be applied simultaneously to the listed companies on the SSE STAR Market, and an additional clause is added to the supplementary articles, so as to coordinate with the review and registration procedures for the M&A and reorganization on the SSE STAR Market.
Q4: Can you brief us on what the SSE will focus on next in the supervision of information disclosure for major asset restructuring?
Since the beginning of this year, the M&A and reorganization of the SSE-listed companies has taken on a new look. A large number of SSE-listed companies make full use of the market means to carry out mergers and acquisitions and reorganizations with the aim of stimulating vitality, enhancing resilience and improving quality.
By the end of November, the SSE-listed companies had disclosed nearly 800 transactions of various types of mergers and acquisitions and reorganizations, involving an amount of RMB 0.6 trillion. In terms of major asset restructuring, a total of 78 reorganization plans had been unveiled on the SSE, involving nearly RMB 202 billion. 39 reorganization plans have been completed, involving an amount of nearly RMB155 billion. Generally speaking, the mergers and acquisitions and reorganizations on the SSE have closely concentrated on the industrial assets and the real economy, focusing on the upstream and downstream of the same industry, with the function of M&A and reorganization in serving the real economy more highlighted. At the same time, in such areas as the mixed ownership reform of state-owned enterprises, the market-oriented debt-to-equity swaps, and helping private enterprises out of difficulties, the important role of mergers and acquisitions and reorganizations has been brought into further play, and quite a few capital operation models that can be used for reference have been discovered. In general, the M&A and reorganization has been functioning continuously on the SSE market as an important capital market solution to improving the quality of listed companies.
The primary goal of SSE’s supervision on information disclosure for M&A and reorganization is to improve the quality of listed companies. Going forward, the SSE will continue to implement the requirements of the CSRC for the market-oriented reforms of M&A and reorganization, adhere to the combination of supervision and service, and promote M&A and reorganization as an important mode of resource allocation to unleash the market vitality and improve the quality of listed companies. According to the classified supervision approach, the SSE will make effective efforts in continuous supervision and precise supervision. For mergers and acquisitions and reorganizations that are in line with the industrial trend and the demand of the real economy, the SSE will actively carry out communication and coordination, provide necessary support in accordance with laws and rules, energetically encourage and help the listed companies to improve quality through mergers and acquisitions and reorganizations, and implement the whole-chain supervision in terms of guarantee for fulfilling reorganization commitments and the continuous effect after the reorganization. At the same time, the SSE will continue to strictly supervise the reorganizations with high valuation, high goodwill or commitments on high performance, fraudulent reorganizations and malicious speculation in shell companies; step up the inquiry, make multiple inquiries when necessary, and stringently prevent the M&A and reorganization from being used as a tool for improper arbitrage or benefit transfer. Regarding suspected counterfeiting, meltdown accidents on the underlying assets of the reorganization, uncompensated commitments on performance, out-of-control underlying assets and other vicious circumstances, the SSE will take fast action and investigate resolutely the responsibilities so as to form deterring and demonstration effects.
