New regulations boost vitality of operation of state-owned capital

It is widely known, unless exempted by laws and regulations, that when a domestic incorporated company embarks on an initial public offering of shares for a listing, its state-owned shareholders are required to transfer part of their stake – at 10% of the actual number of shares issued – to the National Council for Social Security Fund. However, the relevant regulators have not been clear about whether a partnership with a state-owned asset makes it a state-owned shareholder and if it needs to fulfil the obligation to transfer. The identification of partnerships with state-owned assets as state-owned shareholders of listed companies was finally settled on 16 May 2018, when the State-owned Assets Supervision and Administration Commission of the State Council (SASAC), the Ministry of Finance, and the China Securities Regulatory Commission jointly issued the Measures for the Supervision and Administration of State-Owned Shares of Listed Companies (Decree No. 36).

Before the promulgation of Decree No 36, neither the Interim Regulations on Administration of State Shareholder’s Logo of Listed Company (Document No. 80) nor the Measures for the Supervision and Administration of Transactions of State-owned Assets of Enterprises (Decree No. 32) clarified the identity of state-funded limited partnerships as state-owned shareholders. Therefore, the local regulators have quite different opinions on whether a state-funded limited partnership should, in practice, be identified as a state-owned shareholder.

Among the cases, New Alliance Capital was the first state-funded limited partnership identified as a state-owned shareholder. According to the listing prospectus of Tong Oil Tools, New Alliance Capital holds 15.41% of the shares of Tong Oil Tools before the IPO. Limited partner Shanghai Alliance Investment and the Chinese Academy of Sciences Holdings hold 48.29% and 19.32% shares of New Alliance Capital, respectively. The total capital contribution from the pure state-owned partners of New Alliance Capital exceeds 50%, and the largest contributor is a purely state-owned partner. Therefore, the Shanghai SASAC identified New Alliance Capital as a state-owned shareholder.

Lu Xili is a partner and Fan Minzhi is a paralegal at Boss & Young