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SCMP Reporter

CHINA yesterday announced a package of its first national laws governing Chinese companies issuing shares abroad.

  The State Council's 30-point ''Special Regulation on Shareholding Companies Issuing Shares and Listing Abroad'' will help clarify some grey areas in overseas flotations which emerged during the listing of the first batch of nine companies in Hong Kong.

  The code generally makes it more convenient for companies to issue shares outside China while ensuring that they comply with minimum corporate standards.

  But while plugging existing loopholes, it also contains clauses wide open to interpretation.

  ''It's not enough just to rely on the new regulation because it appears as a conceptual framework,'' said Baker & McKenzie lawyer Leung Cheuk-yan.

  He expected some inadequacies of the regulation would be complemented by Hong Kong's Mandatory Provisions on the articles of association governing Chinese companies already listed in the territory.

   Herbert Hui, head of listing at the Hong Kong Stock Exchange, said the exchange was studying the regulations to see if amendments were needed to Hong Kong rules.

  And it is understood securities authorities in Hong Kong and China are discussing a revision of Mandatory Provisions.

  Key points of the new laws are:    State enterprises to be restructured into shareholding companies for listing abroad can have fewer than five promoters;    Forty-five days' notice is needed to convene an annual general meeting;    A second fund-raising exercise may be done within 12 months; and    A quorum of 50 per cent of voting rights is needed for an annual general meeting.

   Hong Kong auditors say that in some instances the code is more stringent than that in Hong Kong or other international markets.

  Supplementing the Company Law, the code, signed by premier Li Peng, came into immediate effect, suggesting that the 11 H-share companies listed in Hong Kong will have to amend their articles of association to comply with the new rules.

  Its publication yesterday also means that the 18 companies in the second batch of Chinese enterprises approved by the China Securities Regulatory Commission - the country's national securities watchdog - can now speed up their flotation plans.

   Until its publication, some enterprises decided to hold back their listing plans to minimise disruptions to their corporate restructuring necessary for the flotation.

   ''We welcome the regulation as it clarifies several ambiguities about overseas listing by the Chinese enterprises but, at the same time, it also raises some questions,'' said Kenneth Lam, a partner of accountancy firm Price Waterhouse.

    Mr Leung said he appreciated the clear definition of overseas-listed stocks, which were not mentioned in the Company Law.

  Interestingly, the code makes no mention of B shares, which are issued to foreigners by mainland companies listed in Shanghai and Shenzhen.

   Mr Lam said while the code eased the existing practices for flotation in some areas, it tightened areas such as the rules for annual general meetings and the appointment and removal of auditors.

   Among the areas eased is the requirement that enterprises being restructured into shareholding companies for listing abroad may now have fewer than five promoters, which is less stringent than the Company Law.

   Under the Company Law, the first corporate framework for shareholding companies which came into effect last month, the requirement is no fewer than five promoters.

   Another flexibility is to allow companies to launch a second fund-raising exercise in less than 12 months after the first share issue.

   A director of a local merchant bank said this was probably intended to address an inconvenience faced by the current H-share companies, which have to seek approval from securities authorities to launch initial public offers.

   Under the current practice, state enterprises converted to shareholding companies will have to issue shares to the original shareholders. And when they seek listing abroad, they have to seek a waiver from the Company Law, which does not permit two fund-raising exercises within 12 months.

   ''But from the reading of the code, they seem to have gone further to allow companies to raise funds even after the initial public offer,'' said the director of the merchant bank.

   Mr Lam pointed out the code devoted a huge chunk to corporate governance and the fiduciary duties of directors. ''This is something we strongly welcome.''    But he added that the requirement that companies must give a 45-day notice of the annual general meetings was significantly more stringent than the Hong Kong practice, which is 21 days.

   Mr Leung said the regulation did not fully address the issue of dividend payment and the mechanism of holding shareholders' meetings.

  It also did not spell out the exchange rate at which the dividend would be translated, while the quorum is maintained at 50 per cent of a company's voting rights, which was considered stringent.



First laws on shares abroad