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On 31 December 2003, the Securities and Fu-tures Commission (SFC) amended the Criteria Governing the Offering and Issuance of Over-seas Securities by Issuers to reflect the recent amendments to the Regulations Governing In-vestment in Securities by Overseas Chinese and Foreign Nationals and the abolition of the quali-fied foreign institutional investor (QFII) system. The key points are as follows:
The review procedure for issuing overseas securities has been changed to a two-track system of either prior registration or prior ap-proval. The prior registration system is where unless (A) the application is incomplete, or (B) for protecting public interests, (i) the particu-lars required to be specified are insufficient and have not been corrected within a time frame prescribed by the SFC, or (ii) the SFC rejects the application, the registration shall take effect after twelve (12) business days from the date on which the SFC receives the application. However, the SFC has not yet clarified under what circumstances prior ap-proval would be required.
Companies listed on the emerging stock market of the GreTai Securities Market may now issue overseas convertible bonds and bonds with stock warrants. However, these securities can only be converted into shares newly issued by these companies, but not their existing shares. A credit rating report on the bonds produced by a qualified credit rating institution is required when filing an applica-tion for registration or approval.
The restriction that holders of overseas de-positary receipts or overseas shares cannot withdraw the underlying securities within three months after the date of issuance if the underlying secuities were newly issued shares is now lifted.
The following circumstances are added to the conditions under which the SFC may reject an application for issuance of overseas securities:
1.The shareholdings of directors or supervi-sors are below the SFC's requirements, and the situation has not been rectified after notice has been given by the SFC; and
2.The issuer, or its chairman of the board, CEO, or de facto responsible officer, has committed any dishonored or disloyal act and is convicted by the court for such act during the past three years.
If the issuer intends to issue new shares to sponsor the offering and issuance of overseas depositary receipts, the shareholders’ approval is required and the relevant shareholders' resolution should state the basis and rationale for price setting and the issuance's impact on shareholders' equity.
Reissuance of overseas depositary receipts with the underlying shares provided by the issuer’s directors, supervisors, managers or shareholders holding more than 10% of the total issued shares of the issuer is now explic-itly permitted, subject to the SFC's approval.
The frequency that issuers are required (A) to disclose any changes affecting overseas secu-rities, and the number of such securities re-maining in circulation on the Market Obser-vation Post System, and (B) to report to the Central Bank of China, has been increased from once a month to twice a month. In ad-dition to disclosing the relevant information as of the end of each preceding month, changes that occurred by the 15th of each month must be posted and reported by the 20th of each month, and the time limit for disclosure after the end of each month has been shortened from 10 days to five days.
