Listed firms must unveil non-public issuance details

(Shanghai Daily)
Updated: 2007-07-09 09:03

China's stock regulator has ordered listed firms to adopt price consultation procedures during their private placements as it makes every effort to boost transparency of non-public equity sales to protect investor interest.

Public firms must consult with potential investors to work out a price range and let them bid for stocks during the non-public issuance, the China Securities Regulatory Commission said in a notice dated July 4 and obtained by Shanghai Daily yesterday.

The notice, which was sent to all mainland-listed companies via the two mainland bourses, also required a listed firm's board of directors to seek shareholders' approval on price-fixing methods during private placements.

Previously, the so-called book-building mechanism only existed in Chinese mainland public stock offerings while the price and size of private placements were usually settled without sufficient public oversight.

"The regulator definitely wants listed firms to beef up rule compliance and boost disclosures during their non-public stock issue," said Wu Ke, a Zhongtian Investment Consulting Co analyst. "The book-building system will help make private sales more market-based and help shield the rights of minority investors."

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China's stock watchdog issued rules in May 2006 which allowed public companies to sell shares to selected investors through private offerings to help the firms bring in strategic and financially-strong partners.

The latest notice reiterated that domestic or foreign strategic investors as well as controlling shareholders can't sell the stocks they buy in a listed firm via a non-public offering within three years of purchase.

If a public company plans to place shares with non-strategic institutional investors, it must detail thresholds for the buyers and the proposed lock-up period, which should be at least 12 months, according to the notice.

A listed company must also set the upper limit of capital it expects to raise through a private placement and how it plans to use the proceeds. It has to make public disclosures within two trading sessions after the fund-raising proposal is approved by the board.

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