CHINA Law and Practice Contributed by: Lingyun Dai, Tao Liu, Xueyong Liao and Yuzhou Shang, Lifeng Partners
funds. However, for a long time, privatisation trans - actions whereby the acquirer purchases shares of a listed company to cause the shareholding structure to fall below the listing requirements, thereby achiev - ing the purpose of delisting, have been relatively rare. (here, we do not consider non-cash privatisation mod - els such as mergers by absorption, share swaps, etc), and privatisation transactions supported by private equity funds are even rarer, which may be related to the fact that listing status itself is a scarce resource. According to the listing rules of China’s stock exchanges, in the context of a privatisation transac - tion, the target company and its board of directors shall strictly comply with a series of legal procedures, including but not limited to: • convening board meetings and shareholders’ meetings; • timely issuing public announcements to fulfil infor - mation disclosure obligations; • promptly applying to the stock exchange for the suspension or resumption of trading of the com - pany’s shares and their derivative products; and • engaging legal counsel to issue a legal opinion regarding the delisting. 7.2 Material Shareholding Thresholds and Disclosure in Tender Offers According to the laws and regulations in China, when an investor and its concert parties’ equity interest in the shares of a listed company reaches 5% of the issued shares of the company, and for each subse - quent increase or decrease of 5%, a report on changes in equity interests shall be compiled within three days from the date of occurrence of such fact, and a writ - ten report shall be submitted to the China Securities Regulatory Commission and the stock exchange, and the listed company shall be notified and an announce - ment shall be made. Moreover, within three days from the date of occurrence of such fact, trading of the listed company’s shares shall be suspended. For private equity-backed bidders, it is critical to note that the aforementioned 5% disclosure threshold refers to the combined shareholding percentage of the bidder and its concert parties (including affiliated private equity funds), encompassing both shares reg -
istered under their names and those over which they have de facto voting control despite no formal regis - tration. Failure to adhere to this calculation standard – specifically, if the combined holdings of the bidder and its concert private equity funds reach 5% with - out fulfilling the requisite disclosure, filing and trading suspension obligations – will result in the portion of shares exceeding 5% being subject to a 36-month voting rights restriction. This could materially adverse - According to the Measures for the Administration of Takeover of Listed Companies (2025 Revision) issued by the China Securities Regulatory Commission, if an acquirer holds 30% or more of the issued shares of a listed company through securities trading on a stock exchange and intends to further increase its share - holding, it shall proceed by way of a mandatory tender offer – either a general offer or a partial offer. ly affect the overall acquisition plan. 7.3 Mandatory Offer Thresholds For private equity-backed bidders, when calculat - ing the aforementioned 30% mandatory tender offer threshold, it is crucial to note that shareholdings of affiliated parties may need to be aggregated pursuant to Chinese legal requirements. This includes scenarios where: • different private equity funds are controlled by the same entity; • one party has control over another; or • one party can exercise significant influence over another’s decision-making. Notably, even in the absence of share transfers, if a party grants voting rights to the bidder through a voting rights entrustment arrangement, domestic securities regulators may still aggregate the voting rights entruster’s holdings with those of the bidder for threshold calculation purposes. This could potentially trigger the 30% mandatory tender offer requirement. 7.4 Consideration Under PRC laws and regulations, in a tender offer transaction, the acquirer must pay the purchase price in cash. Even if the consideration may be paid with transferable securities permitted by law, the acquirer must simultaneously offer cash as an alternative pay -
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