Lowering the threshold for foreign investment | Revisions to the Measures 2024
On 1 November 2024, six government departments[1] revised and issued the Measures for the Administration of Strategic Investment in Listed Companies by Foreign Investors (hereinafter referred to as the Measures).
The Measures will come into effect on 2 December 2024. This is another important institutional reform centered around strategic investment in listed companies by foreign investors after a lapse of nearly two decades.
This revision has made significant adjustments to the original Scheme in the following areas:
- Expansion of the scope of investment subjects:
The original Measures only allowed foreign legal entities or other organizations to implement strategic investments and foreign natural persons were excluded.
This amendment, however, is consistent with the Foreign Investment Law of the PRC and includes foreign natural persons in the category of foreign investors, allowing them to implement strategic investments in listed companies.
This adjustment opens the door for more international investors to participate in strategic investments in Chinese listed companies, enriches the diversity of investment subjects, and introduces more strategic investors with different backgrounds and perspectives to listed companies.
- Asset requirements relaxed:
The original Measures required that the foreign investor’s total overseas real assets should not be less than USD 100 million or total overseas real assets under management should not be less than USD 500 million.
After the amendment, if the foreign investor does not become a controlling shareholder of the listed company after the implementation of the strategic investment, the asset requirement is lowered to a total of not less than USD 50 million in actual assets or USD 300 million in total actual assets under management; if the foreign investor becomes a controlling shareholder of the listed company, the requirement remains that the total amount of its actual assets shall not be less than USD 100 million or the total amount of its actual assets under management shall not be less than USD 500 million.
This adjustment lowers the entry threshold for foreign investors who are not controlling shareholders, which helps attract more foreign investors with certain strengths but relatively small assets to participate in the strategic investment of listed companies and introduces more long-term capital to listed companies.
- Increase in modes of investment:
The modes of strategic investment provided for in the original Measures include only two modes, namely, directional issuance and agreement transfer.
This amendment adds the tender offer as a mode of strategic investment following the relevant provisions of the Securities Law of the PRC and the actual situation of the securities market.
The introduction of the tender offer method provides foreign investors with more investment options and operational space, enabling them to participate in the strategic investment in listed companies more flexibly, and also increases the competition mechanism in the market, which is conducive to the improvement of the governance level and value discovery of listed companies.
- Payment of consideration is liberalized:
If a strategic investment is implemented by way of a directional issuance or tender offer, shares of an overseas unlisted company are permitted to be used as payment consideration.
The original Measures did not involve any relevant provisions on cross-border share exchanges, and this amendment opens this path, providing foreign investors with more choices of investment strategies, and helping to promote the interconnection of domestic and foreign capital markets and the optimal allocation of resources. For listed companies, through cross-border share exchange, they can introduce high-quality assets and advanced technology from abroad to enhance their competitiveness and value.
- Adjustment of shareholding ratio and lock-up period:
The original Measures stipulated that the proportion of shares in a listed company acquired by a foreign investor in its first strategic investment in a listed company should be at least 10% and that the acquired shares shall not be transferred within three years.
This amendment, in conjunction with the regulatory rules of the securities market, abolishes the shareholding requirement for the implementation of strategic investment by way of directional issuance and reduces the shareholding requirement for the implementation of strategic investment by way of agreement transfer or tender offer from 10% to 5%.
At the same time, the lock-up period for foreign investors’ shareholding was adjusted from not less than 3 years to not less than 12 months, however, if other regulations require a longer lock-up period, the relevant regulations need to be met.
This adjustment reduces the investment risk and capital pressure on foreign investors while maintaining the medium- and long-term investment attributes of strategic investments and improves the flexibility and liquidity of investments.
In summary
This revision of the Measures is another important step in the opening up of China’s capital market to the outside world.
This series of adjustments aims to further broaden the channels for foreign investors to invest in the securities market, give full play to the potential of the strategic investment channel to attract capital and encourage foreign investors to carry out long-term investment and value investment.
The implementation of the new Measures will provide a more convenient and flexible investment environment for foreign investors and will also introduce more high-quality foreign investment and advanced management experience to China’s listed companies, promoting the healthy and stable development of China’s capital market.
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[1] Six government departments:
1)Ministry of Commerce
2)China Securities Regulatory Commission
3)State-owned Assets Supervision and Administration Commission of the State Council
4)State Administration of Taxation
5)State Administration for Market Regulation
6)State Administration of Foreign Exchange
