Jurisdiction - China
China – Companies Joining Preferred Shares Pilot Must Publish Detailed Stock Issuance Plan And Prospectus, Says Beijing.

12 April, 2014


Legal News & Analysis – Asia Pacific – China – Capital Markets


Chinese companies planning to issue preferred shares as part of a government-authorised pilot project must prepare a stock issuance plan listing the number of preferred stocks to be issued, the Chinese Securities Regulatory Commission (CSRC) has said.


The plan should also list the price of shares, the yield and stock buy-back terms, reports the Chinese state press agency Xinhua. And companies must issue a prospectus highlighting risk factors, describing the purpose of the share issue and summarising board directors’ opinions on the issue. 


Information relating to the share issue should also be published on newly designated websites, according to the newspaper, to “help investors make informed decisions” according to Xinhua.


The CSRC has issued rules relating to information disclosure for preferred shares as the latest step in a pilot announced by the Chinese government last month, which will allow some Chinese companies to issue this type of share. Preferred shares entitle the holder to a fixed-rate dividend which is paid to them before any dividend is distributed to holders of ordinary shares. Holders of preferred stock also rank higher than ordinary shareholders in receiving proceeds from the liquidation of assets, should a company be wound up.


China is trialling the introduction of preferred shares in the belief the development will open up additional financing channels for Chinese companies and offer more investment instruments for investors with the creation of a multi-level capital market, the state news agencies report. The move is a further step in the Chinese government’s stated intention to create a more mixed economy in the republic.


“The trial of preferred shares is a great innovation in the Chinese capital market and plays an important role in deepening reform,” said CSRC spokesperson Zhang Xiaojun last month, as the rules governing which kind of companies will be allowed to issue preferred shares were announced.


Under the CSRC rules, three types of listed companies can publicly issue preferred shares, China Daily reported last month. These are Shanghai Stock Exchange 50 index members, which are the largest companies in terms of market capitalization; companies which are planning to acquire other listed companies by issuing preferred shares for payment; and companies which want to buy back common stock and which plan to decrease their registered capital by issuing preferred shares as payment.


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