Administration
of Initial Public Offering and Listing of Shares Procedures
(Promulgated
by the China Securities Regulatory Commission on 17 May 2006
and effective as of 18 May 2006.)
PART ONE:
GENERAL PROVISIONS
Article 1: These Procedures have been formulated in
accordance with the Securities Law and the Company
Law in order to standardize the act of initial public
offering and listing of shares and protect the lawful rights
and interests of investors and the public interest.
Article 2: These Procedures shall apply to
initial public offering and listing of shares in the
territory of the People's Republic of China.
These Procedures shall not apply to the subscription and
trading of shares of domestic companies in foreign
currencies.
Article 3: Initial public offering and listing
of shares shall meet the conditions of offering prescribed
in the Securities Law, the Company Law and
these Procedures.
Article 4: Information disclosed by the issuer
in accordance with the law must be truthful, accurate,
complete, and may not contain any false record, misleading
representation or major omission.
Article 5: The sponsor and its sponsor
representative shall follow the principles of due diligence
and good faith in duly performing their obligations of
prudent verification and guidance, and shall assume
responsibility for the truthfulness, accuracy and
completeness of the issuance sponsorship document issued by
them.
Article 6: The securities service institutions
and their personnel that issue relevant documents for the
issuance of securities shall rigorously perform their
statutory duties in accordance with the business standards
and ethics generally accepted in their industry and assume
responsibilities for the truthfulness, accuracy and
completeness of the documents issued by them.
Article 7: Verification and approval by China
Securities Regulatory Commission (hereafter, the "CSRC") of
the initial public offering of shares of an issuer does not
represent a substantive judgment or guarantee with regard to
the investment value of the shares or the returns to the
investors. After the shares are issued in accordance with
the law, the investment risks arising from the change in the
operation and earnings of the issuer shall be borne by the
investors themselves.
PART TWO:
OFFERING CONDITIONS
Section One: Qualifications of Issuer
Article 8: The issuer shall be a company
limited by shares established in accordance with the law and
legally existing.
With the approval of the State Council, a limited liability
company may, when it is converted into a company limited by
shares in accordance with the law, adopt the method of
establishment by way of share offer and make a public
offering of shares.
Article 9: The issuer shall have continuously
operated for three or more years after the establishment of
the company limited by shares, unless otherwise approved by
the State Council.
If a limited liability company is converted into a company
limited by shares by converting the entire original net
asset value on the book into shares, the period of its
continuous operation may commence from the date of
establishment of the limited liability company.
Article 10: The registered capital of the
issuer shall have been fully paid, the procedures for
transfer of property rights of the assets used for capital
contribution by the promoter or the shareholders shall have
been completed, and there shall not be any major ownership
dispute over the main assets of the issuer.
Article 11: The production and operation of
the issuer shall be in conformity with the provisions of
laws and administrative regulations and the company's
articles of association and in line with the industrial
policy of the State.
Article 12: In the last three years, there
shall have been no major change in the major businesses,
directors and senior management personnel of the issuer, and
there shall have been no change in its de facto
controlling person.
Article 13: The equity interests in the issuer
shall be clear, and there shall be no major ownership
dispute over the shares in the issuer held by the
controlling shareholder and by the shareholders that are
controlled by the controlling shareholder or de facto
controlling person.
Section Two: Independence
Article 14: The issuer shall have a complete
business system and the capability of operating
independently and directly in the market.
Article 15: The assets of the issuer shall be
integral. A production enterprise shall have the production
system, auxiliary production systems and supporting
facilities that are related to production and operation,
legally possess the ownership of or use rights to the land,
factory buildings, machineries and equipment, as well as
trademarks, patents and non-patented technology that are
related to the production and operation, and have
independent raw material procurement and product sales
systems. Non-production enterprises shall have the business
system and relevant assets that are related to their
operation.
Article 16: The personnel of the issuer shall
be independent. The senior management personnel of the
issuer, such as the general manager, deputy general manager,
person in charge of finance and secretary to the board of
directors, shall not hold any position other than the
position of director or supervisor in the controlling
shareholder, de facto controlling person or other
enterprises controlled by them, nor shall they receive
salaries from the controlling shareholder, de facto
controlling person or other enterprises controlled by them.
The financial personnel of the issuer may not concurrently
hold positions in the controlling shareholder, de facto
controlling person or other enterprises controlled by them.
Article 17: The finance of the issuer shall be
independent. The issuer shall establish an independent
financial accounting system, shall be able to make financial
decisions independently, and shall have a compliant
financial accounting system and a financial management
system for its branches and/or subsidiaries. The issuer
shall not share a bank account with the controlling
shareholder, de facto controlling person and other
enterprises controlled by them.
Article 18: The organizational structure of
the issuer shall be independent. The issuer shall establish
a sound internal operation and management organization to
independently perform the functions of operation and
management, and there shall not be a mixing of organizations
between the issuer and the controlling shareholder, de
facto controlling person and other enterprises
controlled by them.
Article 19: The business of the issuer shall
be independent. The business of the issuer shall be
independent from the controlling shareholder, de facto
controlling person and other enterprises controlled by them.
There shall not be competition in the same industry, or any
connected transaction that is not conducted on an arms'
length basis between the issuer and the controlling
shareholder, de facto controlling person and other
enterprises controlled by them.
Article 20: There shall not be other serious
defects in the issuer's independence.
Section Three: Standardized Operation
Article 21: The issuer shall have established
sound systems of shareholders' general meeting, board of
directors, board of supervisors, independent directors and
secretary to board of directors in accordance with the law,
and the relevant organizations and personnel shall be
capable of performing their duties in accordance with the
law.
Article 22: The directors, supervisors and
senior management personnel of the issuer shall understand
the laws and regulations relating to the issuance and
listing of shares and shall be aware of the statutory
obligations and liabilities of a listed company and its
directors, supervisors and senior management personnel.
Article 23: The directors, supervisors and
senior management personnel of the issuer shall meet the
employment qualifications prescribed by laws, administrative
regulations and rules and shall not be in any of the
following circumstances:
- having
been subject to the measure of securities market entry
denial imposed by the CSRC and the entry denial period
has not expired;
- having
been subject to administrative penalty by the CSRC
within the most recent 36 months or to public reprimand
by a stock exchange within the most recent 12 months; or
- having
been subject to formal investigation by the judicial
authority for suspected involvement in a crime or to
formal investigation by the CSRC for suspected
involvement in violation of laws or regulations, and
there has been no clear conclusion yet.
Article 24: The internal control system of the
issuer shall be sound and effectively implemented, and shall
be able to reasonably ensure the reliability of financial
reports, the lawfulness of production and operation and the
efficiency and result of operation.
Article 25: The issuer shall not be in any of
the following circumstances:
- within
the most recent 36 months, it has made a public offer or
disguised public offer of securities without the
verification and approval of the statutory authority; or
the relevant illegal act is still continuing at the
moment although it was committed more than 36 months
before;
- within
the most recent 36 months, it has been subject to
administrative penalty for violation of laws and
administrative regulations relating to industry and
commerce administration, taxation, land administration,
environmental protection, customs and others areas, and
the circumstances are serious;
- within
the most recent 36 months, it has submitted an offer
application to the CSRC but the offer application
documents submitted contained false records, misleading
representations or major omissions; or it did not meet
the offering conditions but has obtained approval of
offer by deceptive means; or it interfered with the
examination and verification of the CSRC and its share
issuance examination committee by improper means; or it
has falsified or altered the signatures and seals of the
issuer or its directors, supervisors or senior
management personnel;
- the
offer application documents submitted for the current
offer contain false records, misleading representations
or major omissions;
- it is
subject to formal investigation by the judicial
authority for suspected involvement in a crime and there
has been no clear conclusion yet; or
- other
circumstances where the lawful rights and interests of
investors and the public interests are seriously harmed.
Article 26: The company's articles of association of
the issuer shall have specified the examination and approval
authority and deliberation procedures for provision of
security to external parties, and no security has been
provided to the controlling shareholder, de facto
controlling person and other enterprises controlled by them
in violation of provisions.
Article 27: The issuer shall have a rigorous
fund management system, and its funds shall not be used by
the controlling shareholder, de facto controlling
person or other enterprises controlled by them in the form
of loans, debt repayment or payment on its behalf or in
other forms of fund appropriation.
Section Four: Finance and Accounting
Article 28: The assets of the issuer shall be
of good quality, the asset and liability structure shall be
reasonable, the profitability shall be relatively strong and
the cash flow shall be normal.
Article 29: The internal control of the issuer
shall be effective in all major aspects, and a certified
public accountant shall have issued an internal control
attestation report with an unqualified conclusion.
Article 30: The basic accounting work of the
issuer shall be standardized and the financial statements
shall be prepared in accordance with the provisions of the
enterprise accounting standards and the relevant accounting
systems, fairly reflecting the financial status, business
results and cash flow of the issuer in all major aspects,
and a certified public accountant shall have issued an
unqualified audit report.
Article 31: The financial statements prepared
by the issuer shall be based on the transactions or matters
that have actually occurred. Due care shall be maintained in
conducting accounting recognition, measurement and
reporting. Consistent accounting policy shall be used for
identical or similar economic activities without arbitrary
changes.
Article 32: The issuer shall fully disclose
its relationship with connected parties and appropriately
disclose its connected transactions according to the
principle of importance. The prices in connected
transactions shall be fair and there shall be no
manipulation of profits through connected transactions.
Article 33: The issuer shall meet the
following conditions:
- the net
profits in the last three fiscal years shall be positive
and exceed RMB 30 million in aggregate; the net profits
shall be calculated on the basis of the lower of the net
profits before and after deducting non-recurring profits
and losses;
- the net
cash flow from business operation in the last three
fiscal years shall exceed RMB 50 million in aggregate;
or the business revenue in the last three fiscal years
shall exceed RMB 300 million in aggregate;
- the
total amount of share capital before the offer shall not
be less than RMB 30 million;
- the
intangible assets as at the end of the last reporting
period (after deducting land use rights, aquaculture
rights, mining rights, etc.) shall not account for more
than 20% of the net assets; and
- there
shall be no loss that has not been made up as at the end
of the last reporting period.
Article 34: The issuer shall have paid taxes in
accordance with the law and all tax preferential treatments
shall comply with the provisions of laws and regulations.
The business results of the issuer shall not be heavily
reliant on the preferential tax treatments.
Article 35: The issuer shall not be subject to
major debt repayment risks, nor shall it be subject to major
contingencies that affect its continued operation such as
security, litigation and arbitration.
Article 36: None of the following
circumstances may exist in the documents submitted by the
issuers:
-
deliberate omission or fabrication of any transaction,
matter or other important information;
- abuse
of any accounting policy or accounting estimate; or
-
manipulation, falsification or alteration of any
accounting record or relevant vouchers on which the
preparation of financial statements is based.
Article 37: The issuer may not be in any of the
following circumstances that affects its continued
profitability:
- the
business model or the type or structure of products or
services of the issuer has undergone or will undergo a
major change that has or will have a major adverse
effect on the continued profitability of the issuer;
- the
position of the issuer in the industry or the business
environment of the industry in which the issuer is
operating has undergone or will undergo a major change
that has or will have a major adverse effect on the
continued profitability of the issuer;
- the
business revenue or net profit of the issuer in the most
recent fiscal year is heavily reliant on a connected
party or a customer with a high degree of uncertainty;
- the net
profit of the issuer in the most recent fiscal year has
been primarily derived from the investment returns
outside the scope of the consolidated financial
statements;
- there
is a risk of major adverse change in the availability or
use of the major assets or technology, such as
trademarks, patents, proprietary technology and
franchise rights, that are being used by the issuer; or
- other
circumstances that may have a major adverse effect on
the continued profitability of the issuer.
Section Five: Application of Offer Proceeds
Article 38: There shall be a clear direction
in the application of the offer proceeds which, in
principle, shall be applied towards the main business.
Except in the case of a financial enterprise, the offer
proceeds shall not be applied towards financial investment
such as holding of tradable and saleable financial assets,
lending to other parties and entrustment of financial
management, nor shall they be invested in companies whose
main business is the purchase and sale of negotiable
securities.
Article 39: The amount of the offer proceeds
and the investment projects shall commensurate with the
current production and operation scale, financial status,
technology level and management capability of the issuer.
Article 40: The projects in which the offer
proceeds are invested shall comply with the provisions of
the industrial policy of the State and the investment
administration, environmental protection, land
administration and other laws, regulations and rules.
Article 41: The board of directors of the
issuer shall carry out a careful analysis on the feasibility
of the projects in which the offer proceeds are invested,
and ensure that such investment projects have relatively
good market prospects and profitability, so as to mitigate
investment risks and raise the efficiency of the application
of the offer proceeds.
Article 42: The implementation of the projects
in which the offer proceeds are invested shall not give rise
to competition within the industry or have an adverse effect
on the independence of the issuer.
Article 43: The issuer shall establish a
dedicated deposit system for offer proceeds. The offer
proceeds shall be deposited into a dedicated account
determined by the board of directors.
PART THREE:
OFFERING PROCEDURES
Article 44: The board of directors of the issuer
shall adopt a resolution regarding the specific plan of the
proposed share offer, the feasibility of the use of the
offer proceeds and other matters that must be specified in
accordance with the law, and shall submit the resolution to
the shareholders' general meeting for approval.
Article 45: The resolution made by the
shareholders' general meeting of the issuer regarding the
proposed share offer shall include at least the following
matters:
- the
type and quantity of the proposed share offer;
- the
targets of offer;
- the
price range or the pricing method;
- the use
of the offer proceeds;
- the
distribution plan for the accumulated profits prior to
the offer;
- the
period of validity of the resolution;
- the
authorization of the board of directors to handle the
specific matters of the proposed offer; and
- other
matters that must be specified.
Article 46: The issuer shall prepare the application
documents in accordance with the relevant provisions of the
CSRC, which shall be sponsored and submitted to the CSRC by
a sponsor.
Issuers in certain industries shall provide the relevant
opinions of the administrative authorities.
Article 47: The CSRC shall decide whether or
not to accept the application within five working days of
receipt of the application documents.
Article 48: After the CSRC has accepted the
application documents of the issuer, the application
documents shall undergo a preliminary examination by the
relevant functional departments and examined and verified by
the offer examination and approval committee.
Article 49: In the course of the preliminary
examination, the CSRC shall seek the opinion of the people's
government at the provincial level of the place of
registration of the issuer on whether it consents to the
issuer's share offering, and shall seek the opinion of the
National Development and Reform Commission on whether the
projects in which the offer proceeds of the issuer are
invested comply with the industrial policy of the State and
the provisions of investment administration.
Article 50: The CSRC shall render a decision
to approve or disapprove the offer application of the issuer
on the basis of the statutory conditions and shall issue the
relevant document accordingly.
The issuer shall offer the shares within six months from the
date on which the CSRC approves the offer. If it fails to
offer the shares within six months, the approval document
shall become void and the issuer may make the share offer
only after obtaining the approval of the CSRC again.
Article 51: If there is any major event in
relation to the issuer after the offer application is
approved and before the share offer is completed, the issuer
shall withhold or suspend the offer, report to the CSRC in a
timely manner and perform the information disclosure
obligation at the same time. If the event affects the
conditions of offer, the issuer shall carry out the approval
procedures again.
Article 52: If the share offer application is
not approved, the issuer may submit a share offer
application again after six months of the date on which the
CSRC issues the disapproval decision.
PART FOUR:
INFORMATION DISCLOSURE
Article 53: The issuer shall prepare and disclose
the prospectus in accordance with the relevant provisions of
the CSRC.
Article 54: The guidelines concerning the
contents and formats of the prospectus are the minimum
requirement of information disclosure. All information that
has a major impact on the investment decision of the
investors shall be disclosed regardless of whether it is
expressly specified in the guidelines.
Article 55: The issuer and all of its
directors, supervisors and senior management personnel shall
sign and affix their seal on the prospectus and ensure that
the contents of the prospectus are truthful, accurate and
complete. The sponsor and its sponsor representative shall
verify the truthfulness, accuracy and completeness of the
prospectus and sign and affix their seal on the verification
opinion.
Article 56: The financial statement cited in
the prospectus shall be valid within six months of the date
on which its last reporting period ends. In special
circumstances, the issuer may apply for an appropriate
extension, but such extension may not exceed one month. A
financial statement shall have an ending date at year end,
half-year end or quarter end.
Article 57: The period of validity of the
prospectus shall be six months beginning from the date on
which the prospectus is last signed before the offer
application is verified and approved by the CSRC.
Article 58: After the application documents
are accepted and before the offer examination committee
carries out examination and verification, the issuer shall
disclose the prospectus (submission draft) in advance on the
website of the CSRC (www.csrc.gov.cn). The issuer may
publish the prospectus (submission draft) on its corporate
website provided that the contents of the disclosure are
completely identical and such disclosure is not earlier than
the disclosure made on the website of the CSRC.
Article 59: The issuer and all of its
directors, supervisors and senior management personnel shall
ensure that the contents of the prospectus (submission
draft) disclosed in advance are truthful, accurate and
complete.
Article 60: The prospectus (submission draft)
disclosed in advance is not an official document for the
share offer of the issuer and must not contain pricing
information, and the issuer may not offer shares on the
basis thereof.
The issuer shall state in a prominent place of the
prospectus (submission draft) disclosed in advance: "The
offer application of the Company has not yet obtained the
approval of the CSRC. This Prospectus (Submission Draft)
does not have the legal validity for share offer and serves
the purpose of advance disclosure only. Investors shall base
their investment decision on the full text of the officially
announced prospectus."
Article 61: The issuer shall, prior to the
offer, publish the summary of the prospectus on at least one
newspaper and periodical designated by the CSRC, publish the
full text of the prospectus on the website designated by the
CSRC and place the full text of the prospectus at the
domicile of the issuer and the domiciles of the stock
exchange on which the shares are to be listed, the sponsor,
the lead underwriter and other underwriting institutions for
review by the public.
Article 62: The offer sponsorship document
issued by the sponsor and the relevant documents issued by
the securities service institutions shall be regarded as the
reference documents of the prospectus, which shall be
disclosed on the website designated by the CSRC and placed
at the domicile of the issuer and the domiciles of the stock
exchange on which the shares are to be listed, the sponsor,
the lead underwriter and other underwriting institutions for
review by the public.
Article 63: The issuer may publish the summary
of the prospectus, the full text of the prospectus and the
relevant reference documents on other newspapers,
periodicals and websites provided that the contents of the
disclosure are completely identical and such disclosure is
not earlier than the disclosure made on the newspaper,
periodical and website designated by the CSRC.
PART FIVE:
REGULATION AND PENALTY
Article 64: If the offer application documents
submitted by the issuer to the CSRC contain any false
record, misleading representation or major omission, or if
the issuer obtains offer approval by deceptive means but it
does not meet the conditions of offer, or if the issuer
interferes with the examination and verification work of the
CSRC and its offer examination committee using improper
means, or if the signatures and seals of the issuer or its
directors, supervisors or senior management personnel are
falsified or altered, the CSRC shall, in addition to
imposing penalty in accordance with the relevant provisions
of the Securities Law, adopt regulatory measures to
terminate the examination and verification and shall not
accept the share offer application of the issuer within 36
months.
Article 65: If the sponsor issues an issuance
sponsorship document that contains any false record,
misleading representation or major omission, or if the
sponsor interferes with the examination and verification
work of the CSRC and its offer examination committee using
improper means, or if the signatures and seals of the
sponsor or its relevant signatories are falsified or
altered, or if the sponsor does not perform other statutory
duties, the matter shall be handled in accordance with the
relevant provisions of the Securities Law and the
sponsor system.
Article 66: If a securities service
institution fails to act with due diligence and the document
that it prepares and issues contains any false record,
misleading representation or major omission, the CSRC shall,
in addition to imposing penalty in accordance with the
provisions of the Securities Law and other relevant
laws, administrative regulations and rules, adopt the
regulatory measure of rejecting the special documents for
issuance of securities issued by such institution in the
next 12 months and rejecting the special documents for
issuance of securities issued by the relevant signatories in
the next 36 months.
Article 67: If the issuer, sponsor or
securities service institution prepares or issues a document
that does not conform with the requirements, or if it
modifies a submitted document without authorization, or if
it refuses to reply the relevant questions raised by the
CSRC in the course of the examination and verification, the
CSRC shall adopt regulatory measures according to the
gravity of circumstances, such as regulatory dialogue and
order of rectification, against the relevant institution and
responsible persons and have the matter recorded in their
files of good faith and make an announcement. If the
circumstances are especially serious, a warning shall be
issued.
Article 68: If the issuer has disclosed a
profit forecast but the amount of realized profit fails to
reach 80% of the forecast profit, the legal representative
of the issuer and the certified public accountant that
signed the profit forecast examination and verification
report shall give a public explanation and apology at the
shareholders' general meeting and in the newspaper and
periodical designated by the CSRC, unless the failure is due
to a matter of force majeure. The CSRC may issue a
warning to the legal representative.
If the amount of realized profit fails to reach 50% of the
profit forecast, the CSRC shall not accept the company's
application for public offer of securities in the next 36
months, unless the failure is due to a matter of force
majeure.
PART SIX:
SUPPLEMENTARY PROVISIONS
Article 69: Procedures for the administration of
initial public offerings of shares without listing in the
territory of the People's Republic of China shall be
formulated separately by the CSRC.
Article 70: These Procedures shall be
implemented as of 18 May 2006. The Several Questions
Regarding Share Issuance Work Circular (Zheng Jian
[1996] No. 12), the Improvement of the Share Issuance
Work in 1997 Circular (Zheng Jian [1997] No. 13),
the Several Questions Regarding Share Issuance Work
Supplementary Circular (Zheng Jian [1998] No. 8),
the Investigation on the Restructuring of Enterprises
That Propose to Issue Shares and be Listed Circular (Zheng
Jian Fa Zi [1998] No. 259), the Investigation on the
Restructuring and Operation of Companies Proposing Public
Share Offer Circular (Zheng Jian Fa [1999] No.
4), the Engagement of Audit Institutions by Companies
Proposing Share Offer and Other Questions Circular (Zheng
Jian Fa Xing Zi [2000] No. 131) and the Further
Standardizing the Relevant Work of Initial Offering and
Listing of Shares Circular (Zheng Jian Fa Xing Zi
[2003] No. 116) shall be repealed simultaneously.
