In June 1996, the Securities Committee of China's State Council issued a notice on the recommendation of the fourth batch of mainland enterprises for overseas listings. What is new is the degree of participation it allows foreign investment bankers in selecting prospective listing candidates. The submission of an analytical report prepared by the underwriter on the reorganization and listing prospects of the recommended enterprise is now required. Thus foreign investment bankers will be involved in the early stages of the screening process.
The notice also specifies the following requirements for listing candidates:
- Preference will be given to enterprises involved in energy, infrastructure and high technology.
- Enterprises should be engaged in businesses which allow foreign investment.
- Priority will be given to enterprises that are in urgent need of foreign exchange to implement high technology project(s) approved by the State Council.
- Priority also for enterprises able to generate at least 10% of their after-tax profit in foreign exchange. This requirement may be relaxed for infrastructure companies subject to approval.
Equity issue and use of proceeds
- The proposed flotation should be able to raise more than Rmb400 million.
- The majority of the listing proceeds should be used for business development. The enterprise should have concrete expenditure plans for the funds.
- The enterprises should have made a profit for three consecutive years. Exemption may be given to infrastructure companies or subject to the listing requirements of overseas stock exchanges.
- The listing entity after reorganization should normally have a net asset value not less than Rmb400 million.
- The state should normally be the controlling shareholder.
- The state should hold more than 51% shares in industries which require absolute state control.
Florence M Li and Brian M H Chan