Listed Companies Will Be Able to Spin Off Units on New Tech Board
Publicly traded Chinese companies will be able to spin off and list units on the newly launched Nasdaq-style tech board under draft rules published Friday by China’s securities regulator.
China has been talking about allowing domestic spinoff listings for 10 years, but there were concerns that such listings might spur financial misconduct or illegal related-party transactions. At least nine A-share listed companies are preparing or considering spinning off parts of their businesses on the new board, Caixin reported earlier.
Under the proposed rules, parent companies must meet seven conditions to list spinoffs, the China Securities Regulatory Commission (CSRC) said.
The parent company should have been listed for at least three years with profits in the last three fiscal years. Excluding the spinoff unit, the parent company’s cumulative net profit should be no less than 1 billion yuan ($141 million). The net profit of the unit should be no more than 50% of the parent company’s, and its net assets should account for no more than 30% of the parent’s in the most recent fiscal year, according to the rules.
If the parent company during the most recent three fiscal years issued shares or raised funds to invest in certain businesses and assets, or acquired assets through restructuring, those businesses and assets can’t be spun off as the main assets of the unit, the CSRC said.
Also under the draft rules, the parent company can’t spin off and list a unit that is mainly engaged in financial business.
The senior management and directors of the parent company and its unit can’t hold more than a 10% stake in the unit before the listing, according to the rules.
In January, the CSRC issued a guideline that companies of a certain scale would be able to list qualified subsidiaries separately on the tech board. But there have been concerns that such listings could compete with stand-alone companies listing on the new board. Subsidiaries qualified to list on the new board are more likely to be spinoffs of high-quality assets of listed parent companies, raising concerns that spinoffs would hurt the parent companies’ earnings and shareholders’ interests.
To transfer profits or evade debts, some companies might overestimate the value of their bad assets and underestimate the value of good assets in the spinoff process, analysts at New Times Securities Co. said in a report.
The CSRC said the new rules were drafted after regulators fully assessed various parties’ arguments and consulted global regulations and practices. Allowing domestic spinoff listings aims to meet the needs of businesses and market development as some listed companies have adopted diversified business strategies to engage in various sectors, the regulator said.
The CSRC will solicit public opinions on the draft rules for one month.
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