Investors With Above 5% of Listed Company Stock to Be Subject to Invitation-Only Private Placements
Yicai Global
/SOURCE : Yicai
Investors With Above 5% of Listed Company Stock to Be Subject to Invitation-Only Private Placements

(Yicai Global) July 27 -- China's Securities Regulator said in a document that controlling shareholders of listed companies, or those holding more than 5 percent of total equity, may acquire privately placed shares in listed companies through direct subscriptions only.

Shareholders are also prohibited from subscribing to shares through asset management products or limited partnerships, the China Securities Regulatory Commission said. Shareholders holding over 5% of a company's equity should now subscribe to buy shares as separate recipients, making them in effect, members of a private club.

Under the new CSRC rules, shareholders are not allowed to invest in structured products, and funding source requirements have been tightened to reduce leverage related risks, a brokerage in south China's sponsor representative, who is assigned by a sponsoring bank as a compliance adviser, told Yicai Global. The stipulations also prevent structured arrangements and interest tunneling among major shareholders.

Funds raised through private placements of shares may not be used to pay for operating expenses such as staff wages and raw materials. In addition, the CSRC said that companies are discouraged from using the proceeds for working capital replenishment or bank loan repayment.

If a company's working capital has been replenished by a substantial amount, its private placement plan is more likely to be rejected, a source in the industry told Yicai Global.

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