I. Background
This year, listed companies have sponsored more re-financing activities by planning non-public shares issuance according to the "Administration Measures on Securities Issuance by Listed Companies". It is learnt that after the China Securities Regulatory Commission amended and perfected the "Measures on Administration of Listed Companies' Acquisition" and the “Administrative Measures for Significant Asset Reorganization of Listed Companies” to further propel the market-oriented reform for mergers, acquisitions and reorganizations, listed companies, considering future mergers and acquisitions for expansion, are more eager to reserve cash through non-public shares issuance, which might result in a big increase of non-public shares issuance in the future.
According to previous cases, most listed companies applied for continuous trading suspension of their shares and relevant derivatives with reasons such as “unable to keep the planning information secret” and “there is uncertainty in non-public issuance scheme” while planning their non-public shares issuance. To regulate the issues including trading suspension and resumption related to non-public issuance planned by the listed companies, the notice is specially released for the following 3 reasons:
1. In the practice, there exist some careless applications for trading suspension, long-time trading suspension, and trading suspension without uniform standards, which exert dramatic negative influences on investors’ trading.
2. Listed companies’ long-time trading suspension for planning non-public shares issuance violates the efficiency principle and the market-oriented orientation that should be abided by in the reform of the securities issuance system and harms the cultivation of a sound and mature capital market.
3. After the Shanghai-Hong Kong Stock Connect program was implemented, stocks of nearly 600 listed companies on the Shanghai Stock Exchange (SSE) had become the target for trading by overseas investors. If the listed companies still apply for long-time trading suspension for planning non-public shares issuance in the future, it will contradict with practices and principles of the overseas securities market and might be doubted by overseas investors.
To solve the above problems, the SSE has worked out the “Notice of Standardizing Trading Suspension and Resumption Caused by Listed Companies Planning Non-public Shares Issuance and Relevant Issues” (the Notice for short) in accordance with the procedures for listed companies’ trading suspension and resumption and relevant standards.
II. Basic principle and idea
The Notice mainly abides by the following 3 principles in the aspect of standardizing listed companies’ shares trading suspension for planning non-public shares issuance.
1. Reasonable need for trading suspension and resumption is guaranteed. A listed company’s planning non-public shares issuance, the high-sensitive information that will influence shares prices, needs to go through an array of procedures such as drawing up relevant scheme and negotiating with subscribers, or even needs to go through prior asset auditing and assessment or get approval from relevant competent authority. A listed company’s application for shares trading suspension during the period of planning non-public shares issuance will be helpful to avoid such violations as inside trading, as the planning will involve many people and last a long time. Thus, we have done the statistics work for the data about the time of trading suspension of SSE-listed companies for planning non-public shares issuance since 2012, and learnt the reasons for and basic circumstances of the trading suspension, after which we have stipulated the mechanism and time for application for trading suspension to guarantee the reasonable need for trading suspension for planning non-public shares issuance.
2. A listed company is required to determine issues of trading suspension and resumption through its internal governance system. In the practice, some listed companies had unreasonably long-time trading suspension for planning non-public shares issuance. Statistics since 2012 showed that the longest time was 143 days, which damaged investors’ right of managing market fluctuation risk through trading. Apart from the possible reason of a complex scheme, one of the other reasons was that the company made careless decision on the trading suspension, with a sluggish and imprudent planning. Thus, the Notice requires that listed companies shall strictly implement internal governance and decision-making procedures; board chairmen must sign to confirm the applications for trading suspension; postponement of trading resumption shall be discussed and approved by directorate meetings and shareholders’ meeting before implementation.
3. Listed companies are urged to fulfill their obligations of information disclosure, so as to protect small and medium-sized investors’ right to know and their participation right. The Notice specifies the requirements for listed companies’ information disclosure at each planning stage to guarantee the small and medium-sized investors’ right to know the listed companies’ planning, with an aim to solve such problems as disclosing non-concrete planning progress and vague reasons for postponement of trading resumption or termination of planning. Besides, by referring to the voting avoidance mechanism for stakeholders of connected transactions, the Notice specifies that related shareholders planning to subscribe for the non-publicly issued shares shall avoid voting when the shareholders’ meeting discusses the proposal of postponing trading resumption, in a bid to guard small and medium-sized investors’ right to participate in the decision-making.
III. Main contents and reasons
According to the progress of the listed company’s planning non-public shares issuance, the Notice gives 18 stipulations for the procedures and relevant standards for application for trading suspension and resumption at different stages, with the main contents and reasons as follows:
1. It is specified that the period for trading suspension for planning non-public shares issuance shall be less than 10 trading days generally.
According to the data from 2012 to now, the period of 70% trading suspension of listed companies for planning non-public shares issuance is less than 10 trading days. Thus, the Notice sets less than 10 trading days as a basic requirement for trading suspension, which could meet most listed companies’ actual need for planning non-public shares issuance.
2. Indispensable circumstances for application for postponement of trading resumption are stipulated.
The Notice sets a mechanism that a listed company could apply for postponement of trading resumption after a 10-day trading suspension, but with applicable circumstances strictly stipulated, including “there is heavy workload of auditing and assessment on planned-to-be-purchased assets”, “relevant issues require pre-approval from the competent authority”, and “there exists unprecedented significant issue”.
3. Requirements for procedures for directorate meeting and shareholders’ meeting to determine postponement of trading suspension are added.
Since 2012, the period of nearly 20% trading suspension of listed companies for planning non-public shares issuance is more than 15 trading days. The Notice urges listed companies to fulfill internal governance and decision-making procedures to guarantee the preciseness of their application for postponement of trading suspension.
i. If a listed company plans to continuously suspend trading after a 15-day trading suspension, it shall be submitted to the directorate meeting for discussion, with the time for postponement of trading suspension controlled within 20 days.
ii. If a company’s directorate meeting holds that period for postponement of trading suspension should be more than 20 days upon assessment, the proposal of continuous trading suspension after a 20-day trading suspension shall be submitted to the shareholders’ meeting for discussion.
4. The requirement for the disclosure during the period of trading suspension for planning non-public shares issuance is cemented.
The Notice cements the requirement for a listed company’s information disclosure during the period of trading suspension for planning non-public shares issuance to satisfy the needs of investors for acquiring information, with an aim to solve the problems of over-simple disclosure of planning progress, the cliché reasons for postponement of trading resumption, the ambiguous reasons for termination of planning non-public shares issuance disclosed by some listed companies after trading suspension.
i. The principle that a listed company shall disclose information at different stages during the period of trading suspension. The progress of planning non-public shares issuance shall be disclosed every 5 trading days, involving progresses in all work items such as auditing and assessment, and submitting to the competent authority for approval.
ii. A listed company shall specifically give reasons for failing to disclose the scheme in the announcement on postponement of trading resumption, and give a risk alert for the uncertainty of the planning result.
iii. A listed company shall timely hold a briefing for investors to reply to investors’ doubts about trading suspension.
iv. Within 2 trading days after making an announcement on terminating the planning of non-public shares issuance, a listed company shall hold a briefing for investors to elaborate on details of the planning process and reasons for failing to complete the planning within the period of trading suspension, and disclose them in time.
5. The promises of a listed company terminating the planning of non-public shares issuance after trading suspension are specified.
To urge a listed company prudently assess trading suspension for planning non-public shares issuance, the Notice respectively stipulates according to different decision-making procedures for postponement of trading resumption: if a listed company terminates the planning of non-public shares issuance during the period of trading suspension, which has not been discussed and approved at the shareholders’ meeting, it shall promise that the same issue will not be planned within 3 months; if a listed company terminates the planning of non-public shares issuance during the period of trading suspension, which has been discussed and approved at the shareholders’ meeting, it shall promise that the same issue will not be planned within 6 months.
6. Trading suspension for planning non-public shares issuance, and that for having not announced significant issue or planning significant assets reorganization are rationalized.
In the practice, as a specific scheme of non-public shares issuance has great uncertainty, some listed companies generally apply for trading suspension for having not announced significant issue, while some listed companies change the reason for trading suspension to planning non-public shares issuance after a period of trading suspension for planning significant assets reorganization.
The Notice fixes the rationalization principle for the above-mentioned circumstances. First, if a listed company confirms to plan non-public shares issuance after applying for trading suspension with the reason of having not announced significant issue, it is deemed that the company applies for trading suspension with the reason of planning non-public shares issuance. Second, if a listed company changes the reason for trading suspension to planning non-public shares issuance after trading suspension for planning significant assets reorganization, the period of trading suspension shall be less than 10 trading days.