Shenzhen Stock Exchange: Notice On Coordinating Arrangements Of Differentiated Review Procedure Of Mergers And Acquisitions

In accordance with the arrangement of adopting differentiated review procedures, based on the CSRC’s Implementation Measures on Adopting Differentiated Review Procedures for Mergers and Acquisitions, SZSE has made the following announcement:

First, the CSRC will officially introduce the differentiated review procedures for mergers and acquisitions applications by different listed companies on 8 October, 2013. Merger and acquisition applications that had been accepted by the CSRC before 8 October will still be subject to the existing review procedure.

Second, the differentiated merger and acquisition review procedure means that, while the CSRC is reviewing the major asset restructuring applications of listed companies such as issuing additional stocks to purchase assets, purchasing or selling major assets, mergers and separations, the CSRC will conditionally simplify and reduce the administrative approval procedures and carry out differentiated review arrangements based on companies’ information disclosure, standard operation situations, competence in practice of financial advisors and credit records of intermediaries and handling personnel, in combination with the national industrial policies and trading types.

The differentiated review procedure will be classified into 3 categories: exemption or fast review, normal review and prudential review. For restructuring projects entering the exemption or fast review, if it doesn’t involve share issuance, the CSRC will exempt the review procedure and directly approve the application. If it involves share issuance, the CSRC will adopt the fast review procedure and cancel the preview process, and directly pass the application to the merger and acquisition review committee.

Third, when listed companies disclose their major asset restructuring prospectus, all relevant departments should evaluate the restructuring item by item based on the principles of “publicized standard, transparent procedure, objective result and feasible procedure”.

CSRC regional offices and SZSE will be responsible for the evaluation of listed companies’ information disclosure and standard operation situation. The evaluation will be graded into four classes—A, B, C and D. A goes to the exemption or fast review category, B and C to the normal review category, while D to the prudential review category.

At the same time, if any of the following situations occurs, the listed company cannot enter the exemption or fast review category: 1) the company has received administrative punishment, administrative supervision measures or disciplinary sanction from the CSRC in the past three years; 2) the company is under investigation of the CSRC and the investigation has not yet been concluded; 3) the stock is suspended from listing or has issued a risk alert (including stocks tagged as *ST and ST); 4) the company is in the process of bankruptcy restructuring.

The Securities Association of China (SAC) is responsible for “financial advisor’s competence in practice”. Evaluation results are divided into A, B and C categories, while A refers to exemption/fast review, B refers to normal review and C refers to prudential review.  

SZSE inquires the integrity record of intermediary institutions and the handling personnel. Institutions or personnel that are still under administrative penalty / regulation of the CSRC or disciplinary sanctions of the exchange shall not enter the category of exemption/fast review.

Financial advisors comment on “industrial policies and transaction types” and SZSE reexamines the comments. According to “Opinions of the State Council on Promoting Enterprise Merger and Restructuring” launched by the State Council and “Guiding Opinions on Accelerating the Merger and Reorganization of Enterprises in Key Industries” jointly promulgated by Ministry of Industrial and Information Technology (MIIT) and eleven other authorities, mergers and acquisitions involving "automobile, steel, cement, shipbuilding, electrolytic aluminum, rare earths, electronic information, pharmaceuticals and leading companies in industrialized agriculture" can be categorized into exemption/fast review if their transaction is made between/among companies in the same industry or upstream-downstream companies. However, back-door listing is excluded.

Fourth, according to the evaluation above, the final result is subject to one-vote veto, that is, the project goes to exemption/fast review if all sub-items belong to exemption/fast review, and the project goes to prudential review if any of the sub-items belongs to prudent review. Other projects go to the channel of normal review.

SZSE shall integrate sub-item evaluations and determines the review procedures according to the principles above, and reports the result to the CSRC. The CSRC will display the results publicly.

Fifth, to evaluate the information disclosure and standard operation of listed companies, SZSE directly adopts the results of information disclosure assessment in the most recent year. For newly listed companies without such assessment records, the evaluation goes to category B.

In the period between the end of the information disclosure assessment of the most recent year and the disclosure of major asset restructuring prospectus by listed companies, if the situations stipulated in Articles 17, 18 and 19 of the Promulgation Measures on Assessment of Information Disclosure of Listed Companies by Shenzhen Stock Exchange (Revised in 2013) occur, SZSE will make corresponding adjustments to the assessment results.

Sixth, for listed companies submitting application documents for major asset restructuring, they should offer information concerning the financial advisors, accounting firm, asset assessment firm, law firm, and other intermediaries engaging in the restructuring activity and the names and other required information of the handling personnel through the Column of “Listed Companies Business” of SZSE’s official website.

Seventh, for listed companies submitting application documents for major asset restructuring, they should simultaneously submit the written comments and opinions of the financial advisor related to the following issues:

(A) whether the company or industry involved in the major asset restructuring belongs to the categories of “automobile, steel, cement, shipbuilding, electrolytic aluminum, rare earths, electronic information, pharmaceuticals and leading companies in industrialized agriculture” that are the key companies of industries supported for merger and restructuring as prescribed by Opinions of the State Council on Promoting Corporate Mergers and Restructuring and Guiding Opinions on Accelerating the Merger and Restructuring of Enterprises in Key Industries issued by the 12 ministries and commissions including the Ministry of Industry and Information Technology;

(B) whether the restructuring is in the same industry or between the upstream or downstream companies, and whether the activity belongs to backdoor listing;

(C) whether the restructuring involves the issuance of new shares;

(D) whether the company involved is being investigated by CSRC and the investigation hasn’t concluded;

(E) other requirements imposed by CSRC or SZSE.

Eighth, this notice shall come into effect from 8 October, 2013.

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