How should Chinese companies with listings inside and outside Mainland China address the different regulatory requirements and governance expectations of their various listing jurisdictions? The latest in the Institute's Affiliated Persons ECPD seminar series addressed this and other governance challenges facing Chinese companies with listings overseas.

At the '38th Affiliated Persons (AP) ECPD H-share Corporate Regulatory Conference' held by the Institute in Beijing from 16 to 18 September 2015, speakers and attendees were invited to share their views on 'Effective corporate governance and internal control in the era of Shanghai-Hong Kong Stock Connect’. In his address to the conference, Institute President Dr Maurice Ngai FCIS FCS(PE), said that, with the implementation of Shanghai-Hong Kong Stock Connect, H-share and A-share companies are exposed to the different regulatory requirements, corporate governance expectations and investment philosophies of the Mainland, Hong Kong and the international arena. The differences in regulation and practices between the Mainland and Hong Kong make it difficult for practitioners to understand and master such governance issues as information disclosure, inside information control, shareholder identification, investor communication and coordination of general meetings. These differences make correct judgements and decisions difficult and pose great challenges for companies with overseas listings. Representatives from regulatory bodies from the Mainland and Hong Kong, including the China Securities Regulatory Commission (CSRC) and Hong Kong Exchanges and Clearing Ltd, together with seasoned professionals from within and outside Mainland China, were invited to discuss the issues with a view to providing a platform for communication, experience sharing and practical problem solving.

New trends in listing overseas

The representative of the CSRC Department of International Affairs spoke on the topic – 'Overseas IPO examination system reform and practices’. Currently, there are three ways to go public overseas, namely, directly in the form of H-shares, or indirectly as red chips, or as 'small red chips’. 'Red chips’ are Chinese owned or controlled companies incorporated overseas – large red chips are mainly large, state-owned enterprises and small red chips are smaller private companies. ‘The current policy is to actively encourage eligible enterprises to go public overseas in accordance with the development strategy of the state and their own development needs, taking advantage of two different markets and two types of resources to enhance competitiveness. We support direct listing in the form of H-shares and do not encourage indirect listing as red chips,’ the representative said.

1. The CSRC speaker added that there are a number of problems associated with the red chip approach.
2. The legal framework is not complete. Comprehensive legislation or regulation on indirect listing overseas is not yet in place. Document 21 of 1997 covers only 'red chips’, and Announcement 10 of the Ministry of Commerce does not cover a comprehensive range of regulatory targets; leaves ample room for supervisory arbitrage; involves relatively complicated procedures; and is difficult to operate.
3. The cost of meeting overseas listing requirements is high and there is the risk of malicious short selling. Regulatory loopholes have resulted in breaches of rules and laws. For a long time, there has been a regulatory gap for 'small red chips’. Some of these companies have been evading tax or illegally transferring local assets.
4. These companies are often beyond the reach of the macroeconomic [regulation and] control policies of the state. Some small red chip companies evade the policies and restrictions on foreign investment, industry policies, and control policies on real estate, excessive production capacity and heavy pollution, adversely affecting macroeconomic management.

Against the background of streamlining administration and decentralisation by the State Council, the CSRC representative presented recent reforms of the system of overseas IPO examination. In March 2015, the National Development and Reform Commission and the Ministry of Commerce revised the 'Catalogue of Industries for the Guidance of Foreign Investments’, largely reducing the number of restricted industries and relaxing foreign investments. In December 2014, the State Administration of Foreign Exchange removed the requirement for settlement of foreign exchange under repatriated funds raised through H-shares to be approved, facilitating the inward flow of funds. The Ministry of Environmental Protection removed the requirement for environmental examination for companies seeking overseas listing, and the Ministry of Land and Resources and Ministry of Housing and Rural-Urban Development improved the mechanism for land examination. The CSRC also introduced a series of reforms from 2013, including removal of the financial threshold requirement, removal of financial examination, disclosing the flow, focus and progress of examination, removal of the pricing restrictions on A- and H-shares, removal of restrictions applicable to A-shares, substantial reduction of amount of feedback, improvement of internal and external examination procedures, substantial streamlining of reporting documents, and disclosing the focus and progress of examination for the first time. With these measures in place, there has been an upsurge in the number of applications for overseas listing. According to the CSRC representative, as at end of August 2015, 51 applications for overseas listing had been received, a 104% growth over the same period last year. The efficiency of the examination process had been greatly enhanced. By the end of August 2015, CSRC had completed the processing of 43 applications, an increase of 48% over the same period last year, and the examination time had been reduced by over 50%. The amount of funds raised also increased markedly. As at the end of August 2015, 23 Mainland enterprises raised has a total of about US$28.3 billion, an increase of 310% over the same period last year. Overseas listing has become more open, transparent and predictable. Going forward, the CSRC will – in line with the 'go global’ strategy, the 'One Belt, One Road’ initiative and relevant arrangements under CEPA in support of the development of the Hong Kong market – continue to pursue reforms of the regulation of overseas listing to strengthen and enhance the role of Hong Kong as an international financial centre.

Shanghai-Hong Kong Stock Connect – an update

Franky Chung, Senior Vice-President, Mainland Division, Hong Kong Exchanges and Clearing Ltd, shared with participants the 'latest developments of Hong Kong's capital market under the Stock Connect system’. In comparison with other markets, he considered that the Hong Kong market is less volatile, mainly comprising mature institutional investors. Most listed companies in Hong Kong pay dividends to attract investors. The steady and consistent stream of dividend provides a stable source of income for investors. And Mainland enterprises play a very important role in the Hong Kong market . The top 10 enterprises in terms of market  capitalisation include China Mobile, China Construction Bank, etc. The top 10 enterprises with the greatest turnover include Tencent, Ping An Insurance, etc. The transaction patterns of Shanghai-Hong Kong Stock Connect show that investments into Shanghai focus on large-scale financial, industrial and consumer stocks, while investments into Hong Kong are spread among a large variety of stocks, with a marked preference for medium-sized companies. He said that Mainland investors participating in Stock Connect are mostly individuals, but the number of institutional investors is growing fast. In future, the Shanghai-Hong Kong Stock Connect model can be expanded and copied to various asset classes.

Effective communication with investors

The BlackRock Group takes an active engagement approach to its investments in Mainland enterprises listed in Hong Kong. Pru Bennett, the Group's Head of Corporate Governance and Responsible Investment in Asia-Pacific, discussed the concept of 'responsible investment’ at the conference. 'Investors have a duty to supervise the companies they invest in, and stay in contact with those companies through voting and direct dialogue,’ she said. In managing its investments, BlackRock bases its decisions largely on the state of corporate governance of the listed companies. It analyses the impact of environment, social and governance issues before making an investment. It communicates with the management or board of directors of the companies on corporate governance issues. For some special industries, social, ethical and environment issues are covered in the dialogue. It votes at annual general meetings and special general meetings in the best long-term economic interests of shareholders. It participates actively in the market to understand best practices to promote the creation of long-term value for shareholders. BlackRock is focused on protecting and enhancing the economic value of the companies its clients invest in, but does not make social, ethical and environmental value judgements for its clients. Shareholder engagement was also addressed by another institutional investor at the conference. Cas Sydorowitz, Managing Director, Georgeson UK, spoke on 'Corporate governance and general meetings’. He said that communication with investors is essential for companies. The media is quick to report crises and 'news value' tends to be associated with the discord between investors and listed companies. Confrontations with investors will therefore only lead to negative attention. In this context, communication with investment decision makers is a powerful tool to improve relations with investors, he said. He added that communication should start at the beginning of the process, not just before a meeting. Remuneration should be tied to the implementation of agreed strategies and the achievement of company goals. There must be communication with beneficial shareholders when appropriate, and with corporate governance professional firms whose names do not appear in the register of shareholders. Communication should be maintained with holders of US depository receipts because they may hold common shares. Communication must be maintained with every investor who has contacted the company for various reasons.

CRRC's restructuring – a case scenario

The China Railway Rolling Stock Corporation (CRRC) is the world's largest train builder. It was formed on 1 June 2015 with the merger of China Southern Rail Corporation and China Northern Rail Corporation. Xie Jilong, CRRC's Board Secretary, discussed this merger as an interesting case scenario for how to manage such large-scale restructurings. On 18 September 2014, China Southern Rail Corporation and China Northern Rail Corporation set up a steering committee to initiate a merger. The relevant regulatory authorities were contacted to discuss the merger plan. Technically, China Northern Rail Corporation was acquired by China Southern Rail Corporation. There is usually a premium on the price of the shares of the company being acquired in most acquisition deals, but, out of cost-benefit considerations, the CRRC merger was achieved on an equal footing. In addition to the approval by the State Council, the restructuring required approvals by the three groups of bodies set out below. 1. Governance bodies – these included the board, shareholders and the State-Owned Assets Supervision and Administration Commission, the de facto controller. 2. Administrative and industry supervisory bodies – these included the Ministry of Commerce, State Administration for Industry and Commerce, China Railway Corporation, Ministry of Industry and Information Technology, Ministry of Finance, State Administration of Taxation and various anti-monopoly departments. 3. Capital market supervisory bodies – these included the securities regulatory authorities and stock exchanges on the Mainland and overseas, and the China Securities Depository and Clearing Corporation. The restructuring deal could have been voted down if 10% or more of the shareholders of China Northern Rail Corporation were opposed to it. So the voting of H-share shareholders of China Northern Rail Corporation was a key risk area for this transaction. To ensure smooth approval, both Northern and Southern Rail Corporation closely monitored the market and adequately communicated with their shareholders. On the day and the day following the announcement of the transaction, joint telephone conferences were held to present to investors the structure of, and justifications for, the transaction. Financial advisers were engaged to answer relevant questions. After the issue of the shareholder's circular and before the general meeting, joint press meetings and analyst meetings were held, joint road shows were conducted where the senior management met with key shareholders of the two companies to discuss in depth the details of the transaction and to answer questions. A professional nominee company was engaged to collect shareholders’ feedback, as well as information on voting preferences and shareholding structures. Meetings were held through this nominee company with ISS and Glass Lewis, two large service companies collecting shareholders’ views. Continuous market monitoring was maintained via the financial advisers. Based on the experience of this restructuring exercise, Xie Jilong concluded that agreeing on the principal responsible party is a prerequisite of restructuring, and achieving a consensus among all stakeholders is key to a successful restructuring. Other key things to get right include the design of the restructuring proposal and ensuring the work team has the knowledge and expertise to successfully conclude the deal. The '38th Affiliated Persons ECPD H-share Corporate Regulatory Conference' was held in Beijing from 16 to 18 September 2015. See page 41 of this month's journal for more information.  

沪港通时代 境外上市企业治理的新挑战

在境内外两地或多地上市的中国企业，应如何掌握各地不同的法规要求和治理期望？公会最近的联席成员加强持续专业发展讲座探讨了这课题，并讨论海外上市中国企业面临的其他治理挑战。

香港特许秘书公会于9月16日至18日在北京举办了“中国境外上市企业规管研讨会”，邀请业内专家就“沪港通时代的企业有效治理与管控”的主题进行研讨。 香港特许秘书公会会长魏伟峰博士在致辞时表示，自沪港通开通以来，内地H股和A股上市公司面临中港两地甚至国际不同的法规要求、治理规管与投资理念。中港两地在法规及实务操作等方面的差异，致使两地执业人士在信息披露、内幕信息管控、股东识别与投资者沟通以及股东大会统筹等规管治理的识别与掌控更趋复杂，加大了正确判断与决策的难度，面临新的严峻挑战。此次研讨会邀请了两地监管机构中国证监会、香港交易所的代表及国内外资深专业人士与大家就相关问题进行研讨，旨在为大家提供一个沟通交流、共享经验并解决实务问题的平台。

境外上市新趋势 - 更为公开、透明、可预期

中国证监会国际部代表介绍了“境外上市审核制度改革与实务重点”，目前企业境外上市分为三种方式，分别是直接上市的H股方式，间接上市的红筹模式及小红筹方式。 “目前的政策导向是积极支持符合条件的境内企业根据国家发展战略及自身发展需要到境外上市，充分利用两个市场、两种资源不断提高竞争力，支持H股方式的直接上市，不鼓励红筹等间接上市方式”。 据该代表介绍，目前红筹模式存在诸多问题：一是法律规定不完善，目前尚未有关于境外间接上市的完整的法律规定或规范性文件。1997年21号文的规范范围仅限于“红筹”，商务部10号令规范对象不全，监管套利空间大，程序较为复杂，可操作性不强。二是境外架构成本高，而且存在被恶意做空风险。三是监管缺失，滋生违法违规行为：“小红筹”长期处于监管缺失状态，部分“小红筹”企业存在逃避纳税义务、转移境内资产等违法违规行为。四是国家宏观调控政策落空，部分“小红筹”企业规避外资准入政策、产业政策、房地产、产能过剩以及重污染等调控政策，给宏观经济管理造成不利影响。 在国务院简政放权的大背景下，中国证监会代表介紹了近期监管部门对境外上市审核制度进行的改革：2015年3月，发改委、商务部修订外商投资目录，大幅缩减限制类条目，外资准入放宽；2014年12月，外汇局取消H股项下境外筹集资金调回结汇审批，资金入境便利；此外，环保部取消了上市环保核查，国土部、住建部优化了土地核查机制。证监会也进行了系列改革，从2013年以来，陆续取消财务门槛，全面取消财务审核，对外公开审核流程、审核要点、审核进度，取消A/H股定价限制，取消参照A股禁止性条件，大幅精简反馈意见数量，优化内、外部审核程序，大幅精简申报文件，首次公开审核关注要点及审核进度等。 在这些举措下，境外上市申报数量大幅增长，该代表表示，截止2015年8月底，证监会共收到境外上市申请51件，同比增长104%。审核效率显著提高，截止2015年8月底，证监会已审结43件境外上市申请，同比增长48%，审核时间同比减少50%以上。此外，融资额显著增长，截止2015年8月底，共有23家境内企业境外上市融资，合计融资约283亿美元，同比增长310%。境外上市变得更为公开、透明、可预期。下一步，证监会将结合“走出去”、“一带一路”等国家战略以及在CEPA项下支持香港市场发展的有关安排，继续深入推进境外上市监管改革，巩固和提升香港作为国际金融中心的地位。

沪港通模式有望扩容

聯交所内地事务科高级副总裁钟创新则与参会嘉宾交流了“互联互通制度下香港证券市场的最新发展”，他认为，与其他市场相比，香港市场以成熟机构投资者为主，波动性较小；香港上市公司多主动分红以吸引投资者，稳定和持续的红利分配为投资者创造稳定的收益来源。而在香港市场中，内地企业在证券市场的地位举足轻重，市值排名前十的企业包括中国移动、建设银行等，成交活跃前十的公司则有腾讯控股、中国平安等。从沪港通的交易情况来看，北向投资偏向大型的金融、工业和消费品股，南向投资偏向不同类型股，对于中型股的偏好尤其明显。他表示，当前港股通投资者以个人投资者为主，但机构投资者入市加快，未来沪港通模式可以扩容及复制至多个资产类别。

与投资者的有效沟通

贝莱德集团是世界上最大的投资管理公司，其亚太区公司治理与责任投资主管Pru Bennett 是首家国际机构投资者主动与内地在香港上市公司接触沟通的高层领导，她介绍了贝莱德集团的责任投资管理方法。她指出“投资者有责任监控被投资公司，并通过投票和直接对话与其保持对接”。贝莱德的投资管理方法是：在决策时非常看重上市公司的公司治理状况，在投资前分析环境、社会、公司治理(ESG)问题对其投资的影响；就公司治理与管理层或董事会成员进行对接或交流，对某些特殊行业企业还涉及社会、道德及环境事项；在公司年度股东大会和特别会议上就股东的最佳长期经济利益进行投票；积极参与市场以了解促进股东长期价值创造的最佳实践，并对其做出贡献。贝莱德专注于保护和提高其所代表的客户所投资的公司的经济价值，但不代表客户做出社会、道德及环境价值的判断。 Georgeson英国行政总裁Cas Sydorowitz演讲主题为“公司治理与股东大会”，他表示，对于企业来说，与投资者沟通是必要的，媒体热衷追逐危机，而事件的新闻价值往往源于投资者和上市公司的分歧，一旦反对成为趋势，则会产生更多的关注。“沟通是有力量的”，他建议，为了更好的与投资者沟通，应与投资决策人沟通；尽早沟通，不要在会前才开始沟通；把薪酬与完成既定战略和实现公司目标联系在一起；确保在适当的时候与受益股东进行沟通；与并未出现在股东名册上的公司治理专业公司沟通；与美国存托凭证持有人沟通，因为他们有可能持有普通股；确保联系到每一位曾因各种问题与公司进行过联系的投资者。

围绕类别股东的批准设计中国中车合并重组方案成功案例介绍

中国中车股份有限公司董事会秘书谢纪龙应邀在此次研讨会上分享了中国中车的合并重组“重大无先例”之成功案例。2014年9月18日，南北车成立合并工作领导小组，开启合并工作，并与相关监管机构进行沟通，研讨合并方案。在采用吸收合并方式的情况下，通常会对被吸并方的股价给出一定的溢价，最终从成本和效率的角度考虑，双方对等合并，技术上采用南车吸并北车的方式进行。 此次合并需要三个维度的审批，统一布局，缺一不可，而国务院审批是这三个维度的关键。这三个维度包括： 1. 公司治理决策：包括董事会、股东以及实际控制人国资委的审批； 2. 行政及行业审批审核：包括商务部、工商总局、铁总、工信部、财政部、税总及各国家反垄断部门； 3. 资本市场监管：境内外证监会、交易所以及中国证券登记。 由于南北车集团均不持有H股，只要有10%的北车股东反对，交易就会被否决，因此北车H股股东投票问题是本次交易的重要风险点。为确保交易通过，南北车集团充分做好了市场监测与股东沟通工作：交易公告当天或第二天举行联合电话会议向投资者介绍交易结构和理据，并安排财务顾问公司代为回答相关问题；在发出股东通函后股东大会前，举行联合新闻宣传会与分析师会议，公司高管举行联合路演与双方的重要股东会面，深入讨论交易细节和回答问题，聘请专业股东投票代理机构收集股东反馈意见，投票意向资料和股东结构信息，通过此股东投票代理机构与市场两大股东意见服务机构ISS和Glass Lewis 会晤；并持续通过财务顾问每天提供的信息进行市场监测。 谈及此次合并重组的心得，谢纪龙总结：落实责任主体是合并重组的首要条件，各利益相关方达成统一意见是合并成功的关键因素，方案设计是影响合并成败的重要一环，而工作团队的执行力是确保成功的中心环节。 中国境外上市企业规管研讨会”，是公会联席成员第38期加强持续专业发展讲座，于9月16日至18日在北京举行。详情见今期公会动态。