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Following the China Securities Regulatory Commission¡¯s (CSRC) implementation of the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Enterprises and its supporting guidelines, domestic enterprises¡¯ overseas IPOs and subsequent refinancing activities are now subject to filing supervision.

Drawing from their experience in a recent filing case, the authors analyse key areas of scrutiny for overseas securities offerings post-listing, aiming to provide reference for future filing activities.

The prohibitions

Article 8 of the above-mentioned trial measures stipulates that a domestic enterprise is prohibited from offering and listing securities overseas where:

1. It is explicitly prohibited by laws, administrative regulations or relevant national provisions from listing and financing;
2. Its issuance and listing of securities in an overseas market may endanger national security, as determined by competent authorities under the State Council;
3. The domestic enterprise itself, its controlling shareholders or its actual controller has committed a criminal offence such as corruption, bribery, embezzlement, misappropriation of property, or has undermined the order of the socialist market economy during the preceding three years;
4. It is under investigation for suspicion of criminal offences or major violations of laws and regulations, and no clear conclusion has been reached;
5. There are material ownership disputes over the shares held by controlling shareholders, or by other shareholders that are controlled by controlling shareholders and/or actual controllers.

Pursuant to article 1(1) of supporting guideline 1, the circumstances outlined in article 8(1) of the trial measures mainly include situations where:

1. The domestic enterprise is prohibited from listing and financing as specified in the Negative List for Market Access issued by the National Development and Reform Commission and the Ministry of Commerce;
2. The domestic enterprise is identified as an exceedingly dishonest entity under the Guiding Opinions of the State Council on Establishing and Improving the Joint Incentive Mechanism for Trustworthiness and the Joint Disciplinary Mechanism for Dishonesty to Accelerate the Advancement of Social Integrity;
3. There are restrictions or prohibitions on listing and financing as stipulated by laws, administrative regulations and relevant national provisions in terms of industrial policy, production safety and industry regulation.

Approval, filing, verification

Similarly to domestic enterprises, an overseas-listed enterprise must undergo corresponding internal decision-making procedures for refinancing. These procedures may also be subject to a resolution from the enterprise¡¯s shareholders¡¯ meeting or its board of directors, based on the laws of the issuer¡¯s location, the rules of the capital market where it is listed, and the enterprise¡¯s articles of association.

Take the authors¡¯ recent filing case, for example. The issuer was registered in Nevada, US, and listed on the Nasdaq. Since the new issuance did not exceed 20% of the total issued shares, board approval sufficed and no shareholders¡¯ meeting was required, pursuant to Nevada Revised Statutes (NRS) 78.215, Nasdaq rule 5635, and the enterprise¡¯s articles of association.

If there are state-owned equities in a domestic enterprise that is listed overseas, its lawyers should also conduct verification in strict adherence to the Measures for the Supervision and Administration of State-owned Equities of Listed Companies.

Investment verification

Domestic investment. The new filing regulations stipulate that verification should be conducted on whether an issuance involves domestic investment projects. Such investment projects must be verified against the Catalogue for Guiding Industry Restructuring (2024) to ensure compliance with national industrial policies and completion of all necessary procedures for approval, verification and filing.

Overseas compliance. If overseas investments are involved in the issuance, a compliance review should be conducted on these investments in accordance with regulations such as the Notice of the General Office of the State Council on Transmitting the Guiding Opinions of the National Development and Reform Commission, Ministry of Commerce, People¡¯s Bank of China and Ministry of Foreign Affairs on Further Guiding and Regulating the Direction of Overseas Investments. In particular, check whether overseas investments fall into restricted or prohibited categories.

Confidentiality

During issuance and listing on an overseas market, domestic enterprises must enhance their legal awareness of confidentiality and archives management, establish robust confidentiality and archiving systems, and observe the Provisions on Strengthening the Confidentiality and Archives Management Concerning the Overseas Securities Offering and Listing by Domestic Enterprises.

If state secrets are involved, particularly in the form of documents or material containing state secrets or government work secrets either provided or disclosed by the domestic enterprise through overseas listed entities, examine whether the domestic enterprise has obtained approval from competent authorities with approval rights, and has filed the case with the corresponding confidentiality administrations.

If the domestic enterprise provides a third party with documents containing state secrets, government work secrets or other sensitive information that could negatively impact national security or public interest once disclosed, a confidentiality agreement should be signed with the recipient to clearly outline its confidentiality obligations and responsibilities.

Additionally, verification should be conducted on the domestic enterprise¡¯s archives management system, especially whether it has concluded employment contracts and confidentiality agreements with key employees, whether it has robust internal approval procedures and assigned accountable individuals for external distribution of sensitive documents, and whether the protocols are properly executed.

Applicable issues

Last but not the least, it is crucial to assess whether an issuer falls in the categories of ¡°direct or indirect overseas listing of domestic assets, overseas issuance of securities to purchase domestic assets¡±, or ¡°overseas issuance of convertible bonds or exchangeable bonds¡±.

In the case of the former, provide sufficient information about the issuer¡¯s purchase of domestic assets through subsequent securities issuance in the same overseas market after previous overseas listing, in compliance with guideline No.1 on transactions involving domestic assets. In the case of the latter, check whether the review and registration procedures with the foreign debt management authorities are needed.

In addition, the CSRC also focuses on whether issuers have fulfilled the commitments made during their initial filings.

Liu Zhi is a senior partner and Yang Lin is a partner at ETR Law Firm. Wang Jiawei, an intern at the firm, also contributed to this article.