Summary of Key Points
The China Securities Regulatory Commission (CSRC) has recently solicited public opinions on new refinancing regulations, with the main changes including: abolishing the fixed-price issuance for private placements (replacing it with market-based pricing), doubling the upper limit for small-scale, rapid financing (from 300 million to 600 million RMB for companies listed on the Shanghai and Shenzhen stock exchanges, and from 100 million to 200 million RMB for those listed on the Beijing Stock Exchange), and optimizing the shelf registration and authorization processes. The new regulations have not yet taken effect, but some listed companies have already adjusted their plans in advance (for example, by changing the pricing benchmark date) to comply with the new rules. However, some companies are still proceeding according to the old regulations. Lawyers advise businesses to review their plans against the new regulations in advance.
Two Major Changes in the New Regulations
The two most significant changes in the new regulations can be explained simply as follows:
1. End of fixed-price restrictions for private placements: Previously, listed companies could use the “date of the board resolution” as the pricing benchmark date to lock in a lower price for private placements. For instance, if the stock price was 10 RMB and the private placement price was set at 8 RMB, even if the stock price later rose to 15 RMB, subscribers would still purchase shares at the lower price, which could disadvantage minority shareholders. Now, the pricing is determined based on the market conditions on the first day of the issuance period (e.g., 80% of the average price in the 20 days before the issuance date), making it more fair.
2. Doubling the upper limit for small-scale, rapid financing: The upper limit for companies listed on the Shanghai and Shenzhen stock exchanges to use the simplified financing procedure has been increased from 300 million RMB to 600 million RMB; for those listed on the Beijing Stock Exchange, it has been increased from 100 million RMB to 200 million RMB. Large companies with net assets over 10 billion RMB can now raise up to 1 billion RMB. Additionally, the authorization process has been changed from requiring annual approval at the shareholders’ meeting to allowing authorization by the shareholders’ meeting, providing more flexibility.
Different Reactions from Listed Companies
Since the new regulations are still in the feedback stage, listed companies have adopted two approaches:
- Adjusting plans in advance to comply with the new rules: For example, Wanwei High-Tech changed its private placement price from 6.42 RMB (determined by the board) to the market price on the first day of the issuance period, reducing the fundraising amount from 3 billion RMB to 2.3 billion RMB. Other companies such as Lanfeng Biochemical and Kehua Holdings also changed their pricing benchmark dates to the first day of the issuance period.
- Proceeding according to the old regulations: Companies like Bomin Electronics and Walde stated that they will follow the old regulations, with no impact on their current processes, and are moving forward to apply for approval.
Why Does Changing the Pricing Benchmark Date Protect Minority Shareholders?
Shu Siqin, an analyst at Guojin Securities, explained that under the old regulations, the price set by the board could differ significantly from the actual issuance date, potentially leading to a substantial increase in the stock price (e.g., from 10 RMB to 20 RMB) during the period between the two dates. Subscribers would still purchase shares at the lower price, diluting the holdings of minority shareholders. With the new market-based pricing system, the price aligns with market conditions, preventing this situation and reducing opportunities for market speculation.
Enhanced Small-Scale, Rapid Financing
The new regulations aim to make financing more accessible for small and medium-sized enterprises (SMEs). The increased funding limit for small-scale, rapid financing was designed to provide a convenient channel for emergencies such as sudden needs for working capital or investment in small research projects. With the doubling of the limit, its role has become even more important:
- Shift from emergency backup to primary financing method: Huang Qingfeng from Lefeng Law Firm noted that a 600 million RMB limit can generally cover SMEs’ needs for daily research and development, expansion, and working capital, eliminating the need for a lengthy and complete private placement process (which could take several months).
- Active use by Beijing Stock Exchange companies: Since February this year, 16 companies on the Beijing Stock Exchange have applied for simplified financing, with 6 having already disclosed their plans (such as Hechang Polymer and Sanyuan Gene).
However, lawyers remind companies to carefully consider the restriction that the financing amount must not exceed 20% of their net assets after deducting goodwill. They also emphasize that using the simplified procedure does not mean reduced compliance requirements; necessary due diligence and checks must still be conducted, as violations can result in severe penalties.
The Logic Behind the New Regulations
The core purpose of these changes is to make refinancing more fair and efficient:
- Fairness: Market-based pricing protects the interests of minority shareholders and prevents institutional investors from taking advantage.
- Efficiency: Increased funding limits for small-scale, rapid financing, along with simplified authorization processes, enable companies to obtain funds more quickly, supporting the real economy, especially the technological advancement and operational needs of SMEs.
Overall, the new regulations address shortcomings of the old system while providing a faster path for corporate financing, representing a balanced optimization of market interests.