Offshore red-chip structure: Employee incentive scheme via trust plan

In an offshore red-chip structure, staff typically participate in the employee incentive scheme of an offshore company aiming to list. Relevant competent authorities, including the State Administration of Foreign Exchange (SAFE), usually supervise the implementation of the employee incentive scheme. However, in recent years, with the continuing increase in the number of onshore companies achieving overseas listing with the use of a red-chip structure, the practice of implementing the employee incentive scheme in such a format through a trust plan has become mature.

Generally, the trust is established in a way where the staff participate in the employee incentive scheme (hereafter referred to as “Participants”) as the beneficiaries of the trust and the overseas trustee (usually a trust company) will hold the shares issued by the offshore company seeking listing (hereafter referred to as the “Entity”) through a special-purpose vehicle (hereafter referred to as the “SPV”) under its ownership, so that it can hold the shares of the Entity through the SPV for the benefits of the Participants (please refer to the simple illustration of the trust arrangement structure in this column).

In practice, China Renaissance Holdings (CRH) adopted this structure. As shown in the application document, which CRH submitted to the Stock Exchange of Hong Kong (SEHK) on 25 June 2018, Infiniti Trust (Hong Kong) established the Sky Allies trust plan, placing itself as the trustee with the Participants as the beneficiaries, and through Sky Allies Development, which is under its outright ownership, it holds relevant shares of CRH by way of trust and for the benefit of the Participants.

Jason Cheng is a senior partner at Dentons. Dentons’ associate Mao Shengdi and paralegal Jiang Hao also contributed to the article