By Yin Lei
China plans to cut the lock-up period for foreign strategic investors’ stakes in A-share companies to one year, according to the draft administrative rules released by the Ministry of Commerce on Monday.
These draft administrative rules, open to public feedback until August 29, allow a foreign strategic investor to sell its stakes in an A-share company after a one year lock-up period, down from the previous requirement of three years.
The thresholds for a foreign investor’s financial eligibility are set out in this draft.
At a minimum, a qualified foreign investor or its actual controller should possess $50 million worth of assets or manage 300 million worth of them. For such an investor aiming to become a controlling shareholder, the requirements will be higher at $100 million and $500 million respectively.
Strategic investments restricted by the shareholding ratio caps, as defined in China’s negative list, should be subject to the review, approval and administration of the Ministry of Commerce or the competent provincial-level commercial authorities.
In the valuation of foreign stakes to measure such a ratio, shares bought through a private placement or a negotiated trade should follow the prices stated in the related agreements, while those obtained via a tender offer should be based on their highest possible prices.
These draft rules provide two means for foreign investors to exit their investments in an A-share company.
Stakes obtained via a negotiated trade, a private placement, a tender offer, or other legitimate means can be sold after the expiration of the lock-up period. If they have to be transferred within this period due to the bankruptcy or the dissolution of the related foreign investor, prior approval is needed from the competent commercial authorities.
