On August 23, the China Securities Regulatory Commission-CSRC published drafted ” Regulations on Listed Companies’ carve-out”
If a listed company intends to implement domestic carve-out, it must meet seven specific requirements, including listing life, profit threshold, scale of assets, net profit, the standards operation of the subsidiary company, depart and independence of both parent and subsidiary companies.
The listed companies must profit for three consecutive years. After deducting the net profits of the subsidiaries to be split according to their rights and interests in the last three fiscal years, the accumulated net profits of the shareholders belonging to the listed companies are not less than 1 billion yuan, which is a further increase in the net profit amount requirement compared with the Notice of Listing Abroad. It is also more stringent than the profit threshold for market splitting and listing in Hong Kong and other markets.
The process of carve-out: firstly, the listed companies are required to disclose relevant information and prompt risks in accordance with the relevant provisions of major asset reorganization; secondly, the board of directors decides whether the splitting of subsidiary companies is beneficial to safeguarding the legitimate rights and interests of shareholders and creditors; thirdly, strict implementation of the voting procedure of shareholders ‘meeting is required for splitting. At the same time, the discussion shall be adopted by more than two-thirds of the voting rights of the shareholders present at the meeting and more than two-thirds of the voting rights of the minority shareholders present at the meeting.
The Regulations have specific measures to prevent the so-called “capital operation” and restrict the “shell-building and enrichment” of the actual controllers of listed companies. For example, the proportion of stakeholders such as current executives and parent company management teams in the split subsidiaries cannot exceed 10%.
Finally, enterprises that have been punished by the SFC in the last three years or by the exchanges within one year are not allowed to split and list.
At present, there are less than 100 A-share companies qualified to conduct Carve-out, accounting for less than 3%.