EXPLAINER-“VIE” structure helps Chinese companies to set up overseas

0

Band Scott Murdoch and Kane Wu

HONG KONG, December 29 (Reuters)The China Securities Regulatory Commission (CSRC) said last Friday that companies operating with a so-called Variable Interest Entity (VIE) structure seeking to register overseas will need the dog’s approval. custody before the agreement is concluded.

Companies will be required to register their plans with the regulator to ensure they comply with Chinese laws. Bankers and lawyers said the new rules were likely to ease regulatory uncertainty that rocked financial markets in 2021 and stalled offshore listings.

HOW DOES THE STRUCTURE WORK?

Under this structure, a Chinese company creates an offshore entity for overseas listing purposes that allows foreign investors to purchase shares.

The arrangement was designed to help circumvent Chinese rules limiting foreign investment in a number of sensitive industries such as media and telecommunications.

Most Chinese tech companies listed overseas, including Alibaba Group BABA.N and JD.com JD.Ouse this structure, which gives them more flexibility to raise capital, while bypassing the scrutiny and lengthy IPO verification process that companies incorporated in China must undergo.

“This structure is designed for companies in sectors where China will issue an operating license only to local Chinese companies such as internet, education, data center and media industry,” the analysts wrote. of Jefferies earlier this year.

HOW WILL THE NEW RULES WORK?

Until now, there was virtually no regulatory framework in China for VIE structured company listings.

The CSRC’s new draft rules released last week will include VIE-structured companies in its proposed filing mechanism for overseas listings, removing uncertainty over whether such companies would be banned from listing abroad entirely. foreigner.

The deals will require actual regulatory approval which CSRC says could take up to 20 business days if adequate documentation is submitted. Authorities have not yet said when the new rules will come into effect.

The Chinese government can order a company to divest its assets or business if its overseas listing jeopardizes national security, under proposed new rules.

In its announcement, the CSRC said Chinese regulators respect the choices companies make on listing venues and the rules will not be applied retroactively – meaning companies currently listed overseas will not be affected. .

(Reporting by Scott Murdoch and Kane Wu in Hong Kong; Editing by Sumeet Chatterjee and Pravin Char)

(([email protected];))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Share.

About Author

Comments are closed.