Kane Wu, Xie Yu

HONG KONG (Reuters – Chinese regulators released draft rules on Chinese companies’ offshore listing over the last week. They provide some detail about how they will scrutinize capital markets activities in light of a wider regulatory crackdown.

• WHAT ARE THE NEW RULES FOR OFFSHORE LISTING BY CHINESE COMPANIES?

China Securities and Regulatory Commission(CSRC) proposed, on 24 December, tightening the rules governing Chinese businesses listing overseas. It claimed that this would enhance oversight.

Companies that are incorporated overseas using the structure of Variable Interest Entities will be subject to new regulations. The regulator used to only look at firms that were incorporated in China, but now they will also be looking for offshore listings.

The proposed rules require that an offshore IPO applicant submit materials, including the prospectus, and any opinions of industry regulators to the CSRC in three working days following submission of offshore application documents.

If the required materials are provided, the CSRC can make a determination about whether or not the candidate may proceed with their offshore listing plans.

Under the new rules, international banks who underwrite an offshore listing by a Chinese company will be required to register under the Securities Regulator.

China’s National Development and Reform Commission, China’s State Planner, stated separately Monday that Chinese companies involved in certain sectors, which are off limits for foreign direct investment (e.g. Internet news and publishing), will have to get clearances from regulatory authorities before they can be listed outside China.

• WHAT MORE IS TO COME?

The CSRC gave market participants until January 23, to submit their comments on the draft rules.

Cyberspace Administration of China, another Chinese regulator ()The, mid-November published draft rules for a cybersecurity review of some companies looking to list offshore.

By December 13, the CAC had completed consultation and will publish final rules shortly.

• WHAT’S STILL UNCLEAR ABOUT THE OFFSHORE LISTING REGIME?

Draft rules are available for both the CSRC- and NDRC guidance. The final rules are expected to be released by 2022, according to some estimates.

The details of whether an offshore IPO-bound company will have a single contact point are not known.

A State Council statement released last week stated that it would establish a coordinated regulatory body among various government agencies to review offshore listing plans. However, it’s unclear what the board will look like, how it will function, and which department will be able to make the final decision.

CSRC has stated the rules are not retroactively applicable, however it’s unclear if any companies have already filed for listing and haven’t been included under the new rules. JunHe explained in a December 25th note that this was the case.

It is also unclear which and how many regulators’ opinions a company might need before submit their CSRC filings, or under what conditions a company should seek opinions from those regulators, the law firm said.

Although lawyers and bankers expected Hong Kong would be included in the offshore listing regime, it was not stated clearly in the draft rules.

• WHAT IS THE POTENTIAL IMPACT OF THE NEW RULES ON CHINESE COMPANIES’ OFFSHORE LISTING?

Han Kun, a China-based law firm, stated in a note to the effect that regulators at listing venues will likely consider CSRC clearance a condition of approval for offshore listings. This could affect listing timings.

According to bankers, the new rules will make it easier for potential listing candidates to list and encourage them to go to the public markets. This will be especially true of media and technology companies that have been at the center of the regulatory crackdown.