Notice from the Guangzhou Municipal Local Financial Supervision and Administrationon the Issuance of Interim Measures for the Management of Bailout Risk Compensation for Non-State-Owned Listed Companies in Guangzhou
Sui Jin Rong Gui [2019] No. 2
To the Municipal Finance Bureau, Municipal State-Owned Assets Supervision and Administration Commission, all district governments, and the Administrative Committee of the Guangzhou Development District:
The Interim Measures for the Management of Bailout Risk Compensation for Non-State-Owned Listed Companies in Guangzhou has been approved by the Guangzhou Municipal People’s Government and is hereby issued for your due implementation. Any problems encountered during the course of implementation should be reported to the Guangzhou Municipal Local Financial Supervision and Administration.
Guangzhou Municipal Local Financial Supervision and Administration
August 15, 2019
Interim Measures for the Management of Bailout Risk Compensation for Non-State-Owned Listed Companies in Guangzhou
Chapter I General Provisions
Article 1 Pursuant to the relevant provisions of theNotice of the General Office of the Guangzhou Municipal People's Government on the Issuance of Several Measures to Support the Stable Development of Non-State-Owned Listed Companies in Guangzhou(Sui Fu Ban Han [2019] No. 50), these Measures are enacted to facilitate the healthy development of the private sector in Guangzhou and effectively promote the development of financing for non-state-owned listed companies and address issues related to stock pledges by actual controlling persons.
Article 2 To encourage private capital to address difficulties related to the financing of non-state-owned listed companies in Guangzhou through stock pledges by their actual controlling persons, and establish bailout risk compensation mechanisms for non-state-owned listed companies, a certain measure of compensation will be provided for losses incurred by bailout providers (including but not limited to bailout funds for non-state-owned listed companies established for this purpose) that make investments to bail out non-state-owned listed companies and their actual controlling persons.
Article 3 TheGuangzhou Municipal Local Financial Supervision and Administrationshall organize the implementation of the bailout risk compensation mechanisms for non-state-owned listed companies.
Chapter II Bailout Recipients
Article 4 Bailout recipients to be included in the scope of risk compensation mechanisms are A-share listed companies registered in Guangzhou, as well as their actual controlling persons. Such bailout recipients must meet the following requirements:
(1) The recipient should be a non-state-owned listed company in real economy sectors with sound prospects for future development, sound asset quality, and where bailouts are urgently required as the company or its actual controlling persons have encountered temporary cashflow difficulties;
(2) The stock pledge ratio of the actual controlling person of the non-state-owned listed company is greater than 50%, and stock pledge financing is used for production, operations, foreign investments, and capital operations;
(3) There are no major legal or regulatory violations or major dishonest behavior on the part of the non-state-owned listed company and its actual controlling persons.
Article 5 Identification of bailout recipients:
(1) The non-state-owned listed company, its actual controlling persons and the persons acting in concert shall jointly submit an application to be included in the risk compensation mechanism to theGuangzhou Municipal Local Financial Supervision and Administration, and provide all relevant information on the operations of the said listed company, the stock pledges of its actual controlling persons, and the like.
(2) Upon verification by theGuangzhou Municipal Local Financial Supervision and Administrationthat the information provided is accurate and that the company meets relevant bailout conditions, the company shall be included in the database of bailout recipient enterprises.
Article 6 Dynamic tiered management of the bailout recipient shall be implemented based on the stock pledge ratio of the actual controlling persons of the listed company:
(1) Tier A bailout recipients: those with a stock pledge ratio of no less than 80%;
(2) Tier B bailout recipients: those with a stock pledge ratio of 65% (inclusive) to 80%;
(3) Tier C bailout recipients: those with a stock pledge ratio of 50% (inclusive) to 65%;
Article 7 Bailout recipients should report the state of their business operations, existing issues, and matters requiring coordinated solutions to theGuangzhou Municipal Local Financial Supervision and Administrationon a quarterly basis. The Guangzhou Municipal Local Financial Supervision and Administrationshall keep track of and monitor bailout progress and timely address relevant issues.
Chapter III Bailout Investments
Article 8 TheGuangzhou Municipal Local Financial Supervision and Administrationshall establish mechanisms for connecting bailout providers to bailout recipients. Bailout providers must meet the following requirements:
(1) The bailout provider should be legally established and operated as per relevant standards. Bailout providers that are private equity investment funds should complete relevant registration and filing proceduresasper regulatory requirements;
(2) Bailout providers should undertake that they will not seek a controlling stake in the listed company during the bailout period and within 1 year after the expiry of the bailout investment project agreement.
Article 9 Where municipal state-owned enterprises and funds under their management participate in the bailout of non-state-owned listed companies as bailout providers, municipal authorities overseeing state-owned assets shall take into consideration the economic and social benefits thereof when conducting appraisals.
Article 10Bailout investment projects may adopt various investment models, such as equity, bond, or equity-bond models. Specific models include:
(1) Assisting actual controlling persons of listed companies in being discharged from their stock pledges or extending the existing stock pledges;
(2) Increasing capital in the controlling shareholders of the listed company and relevant enterprises that they control, or increasing capital in listed company and the enterprises that it controls;
(3) Subscribing to non-publicly issued shares and convertible bonds of the listed company, and receiving the shares of the listed company transferred;
(4) Other approved bailout investment models.
Article 11An application for inclusion of the bailout investment project in the risk compensation mechanism shall be jointly submitted by the bailout provider and the bailout recipient to the Guangzhou Municipal Local Financial Supervision and Administration. The bailout provider and the bailout recipient shall also provide relevant documents and information such as the bailout investment plan, investment agreement, surety agreement, and the means of using and purpose of the bailout capital. After these documents and information have been verified by the Guangzhou Municipal Local Financial Supervision and Administration, bailout investment projects that meet relevant requirements will be included in the risk compensation mechanism. The loss compensation standards for bailout investment projects shall be determined by the tier of the bailout recipient.
Article 12A project bailout investment agreement shall be valid for no less than 3 years.
Article 13Where any of the following circumstances arise, a bailout investment project shall no longer be included in the risk compensation mechanism:
(1) The bailout investment project agreement is prematurely terminated or has not been performed;
(2) The bailout provider obtains a controlling stake in the listed company during the bailout period or within 1 year after the expiry of the bailout investment project agreement.
Article 14Quota management will be applied to the total bailout investment received by a bailout recipient. The total amount of bailout investments that a bailout recipient may receive shall be calculated per the following standard:
The market value of the shares of the listed company held by the actual controlling person × (stock pledge ratio - 50%). Furthermore, in principle, Tier A bailout recipients may not receive more than CNY 1 billion, Tier B bailout recipients may not receive more than CNY 800 million, and Tier C bailout recipients may not receive more than CNY 600 million. The market value of the shares shall be determined by the average stock price over the 20 trading days prior to the application for bailout investment project.
TheGuangzhou Municipal Local Financial Supervision and Administrationshall constantly track and dynamically manage the bailout investment quota for bailout recipients.
Article 15TheGuangzhou Municipal Local Financial Supervision and Administrationshall correspondingly adjust the bailout investment project quota for the bailout recipient where any of the following circumstances arise:
(1) Circumstances specified in Article 13 of these Measures;
(2) The bailout recipient applies to withdraw the bailout investment project from the risk compensation mechanism;
(3) The bailout provider does not submit an application for risk compensation within 3 months after the expiry of the bailout investment project agreement.
Article 16TheGuangzhou Municipal Local Financial Supervision and Administrationwill not approve any new bailout investment for a bailout recipient after completing 1 round of risk compensation procedures for the said bailout recipient.
Chapter IV Risk Compensation
Article 17After a bailout investment project agreement expires naturally, the bailout provider shall be compensated based on actual incurred losses from their bailout investments (excluding contingent losses). Compensation standards are as follows:
(1) 50% of the actual losses for each Tier A bailout recipient, up to a cumulative total of CNY 20 million;
(2) 35% of the actual losses for each Tier B bailout recipient, up to a cumulative total of CNY 15 million;
(3) 20% of the actual losses for each Tier C bailout recipient, up to a cumulative total of CNY 10 million.
Article 18Actual losses incurred in bailout investment projects shall be calculated as follows:
Principal - repaid principal - interest paid - income during this period - repayments on behalf - exit price.
Article 19 A bailout provider should, within 3 months of the expiry of the bailout investment project, apply to the Guangzhou Municipal Local Financial Supervision and Administrationfor compensation of their losses, and provide the following documents:
(1) Special audit reports;
(2) Bank statements and proof of transactions regarding project investments, dividends and withdrawals;
(3) Other documents as requested by theGuangzhou Municipal Local Financial Supervision and Administration.
A bailout provider who fails to make an application for compensation within 3 months after the expiry of the bailout investment project shall be deemed to have voluntarily waived its right to do so.
Article 20 After approving risk compensation application documents, the Guangzhou Municipal Local Financial Supervision and Administrationwill include compensations in its departmental budget for the following year and disburse them after verifying that none of the circumstances specified in Article 13 of these Measures apply.
Article 21 After determining the losses incurred by bailout investment projects, theGuangzhou Municipal Local Financial Supervision and Administrationshall entrust municipal asset management companies to follow up on the recovery of relevant loans by bailout providers. Bailout providers that have received compensations for losses incurred by bailout investment projects should, if they subsequently recover all or part of the principal and interest due, re-calculate the compensations per the provisions of Article 17 and Article 18 of these Measures, and return excess amounts to municipal finance authorities within 20 working days of recovering such monies.
Chapter V Oversight and Management
Article 22TheGuangzhou Municipal Local Financial Supervision and Administrationshall strengthen oversight and management of the actual operations of bailout investment projects, and monitor the actual amount of funds used, means of using, and purposes of bailout investment capital through on-site and off-site inspections, arranging talks and correspondence enquiries to ensure that bailout investment projects serve their due purposes and appraise the effectiveness of the bailout risk compensation mechanism.
Article 23TheGuangzhou Municipal Local Financial Supervision and Administrationwill require bailout recipients that, without authorization, change the actual amount of bailout investment capital used, the means of using, and purposes thereof to make rectifications within a prescribed time period. The Guangzhou Municipal Local Financial Supervision and Administrationmay adopt measures such as not approving new bailout investment project applications and withdrawing them from the database for bailout recipient enterprises with respect to bailout recipients that fail to do so within the prescribed period. Bailout recipients that fraudulently obtain bailouts will be expelled from the database of bailout recipient enterprises.
Article 24 With respect to bailout providers that fraudulently obtain compensations or fail to refund excess compensations in time, the Guangzhou Municipal Local Financial Supervision and Administrationwill recover all compensation monies that have been disbursed, void their eligibility for risk compensation and other municipal financial support policies, and impose penalties on such enterprises in accordance with the law. Those suspected of criminal offenses shall be reported to judicial authorities for further action.
Chapter VI Supplementary Provisions
Article 25These Measures shall come into force from the date of issuance for a period of 5 years.