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China unveiled new rules on acquisition of controlling stakes in domestically listed companies yesterday, laying the legal groundwork for the acceleration of mergers and acquisitions (M&As).
Investors will be able to buy controlling stakes in listed firms through the markets or by agreements with the firms and their shareholders, the market watchdog China Securities Regulatory Commission (CSRC) said in a statement published on its website.
Holdings of 30 percent or more are considered controlling stakes, according to the rules that are due to take effect on December 1.
"The rules are designed to regulate the purchase of listed companies, better boost market resources and protect investors' legal rights," the CSRC statement said.
The commission started to work on the rules as early as 1999 in order to standardize M&As, which "most reflect the efficiency of the stock market and are the most creative function of the market", CSRC Chairman Zhou Xiaochuan was quoted as saying by Shanghai Securities News.
"Through mergers and restructurings, China's capital market will play an active role in better integrating the nation into the world economy and ensuring smoother economic transition and structural adjustment," Zhou said.
M&As on the Chinese mainland hit US$44 billion in 2000, ranking third among Asian economies, statistics indicated earlier.
Zhou also stressed that private and foreign investors are given equal rights in such acquisitions. "The new rules will treat all types of investors equally so as to attract more buyers," he said.
"The purchase of listed companies by non-State-owned and foreign-funded enterprises will further enhance the quality of the companies and lay the foundation for a sustained and healthy development of the securities market," Zhou said.
Analysts lauded the new rules as conducive to regulating acquisition activities, but said legislation alone is unlikely to produce a surge in M&As.
"There is unlikely to be a surge immediately. The quantity probably won't rise rapidly, but there will be major improvement in quality," said Kang Jing, a senior analyst with Beijing Securities.
The pace of new M&As is still subject to real needs, the companies' ability to handle such operations and the removal of barriers such as regional protectionism, she said.
Kang said M&As have been commonplace in China, but the new rules are expected to help yield more productive and effective M&As and produce more synergies among businesses.
Intermediaries in M&As, including accounting firms, law firms and appraisal companies, which have already been rejecting non-standard deals, will presumably get more selective with such operations, Kang said.
Major new M&As are likely to be seen in heavy-investment sectors such as petrochemicals, auto manufacturing and power generation as well as in fully competitive industries such as beer production, analysts say.
(China Daily October 9, 2002)
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