Circular on Encouraging Mergers and Reorganizations, Cash Dividends and Share Repurchases of Listed Companies

Zheng Jian Fa [2015] No.61

August 31, 2015

In order to further improve the quality of listed companies, establish and perfect an investor return mechanism, enhance the investment value of listed companies, and promote structural adjustment, and stable and healthy development of the capital market, relevant matters are hereby circularized as follows:

I. Vigorously promote mergers and reorganizations of listed companies
1. Vigorously promote market-oriented reforms regarding mergers and reorganizations. It is imperative to fully sort out examination and approval items concerning mergers and reorganizations of listed companies, further streamline administration and delegate powers to lower levels, and expand the scope of cancelled examination and approval items. Optimize the market-oriented pricing mechanism for mergers and reorganizations, and enhance the flexibility of mergers and acquisitions.
2. Further simplify procedures for administrative examination and approval and optimize the process of examination and approval. It is imperative to perfect the classified examination and approval system for mergers and reorganizations of listed companies, and examine and approve mergers and acquisitions with high degree of marketization and standardization in a rapid manner, in order to enhance the efficiency of mergers and acquisitions.
3. Encourage the innovation in payment instruments and financing methods for mergers and reorganizations of listed companies. It is imperative to release oriented convertible bonds of listed companies; encourage securities companies, asset management companies, equity investment funds, industry investment funds and others to participate in mergers and reorganizations of listed companies, provide enterprises with financing support in various forms in accordance with provisions and explore new modes of financing.
4. Efforts shall be made to encourage state holding listed companies to strengthen the integration of resources by relying on capital markets, adjust and optimize the industrial layout structure, and improve the development quality and benefit. Qualified state-owned shareholders and their holding listed companies shall improve the sustainable development capacity by means of capital injection and by other ways. Qualified state holding listed companies shall be supported to enhance their overall value through the integration of internal business.
5. Enhance financial support. It is imperative to promote commercial banks to conduct merger and acquisition loan transactions in an active and safe manner, expand the scale of loan, and reasonably determine the loan term. Commercial banks shall be encouraged to implement the comprehensive credit line for listed companies that have completed mergers and reorganizations. Listed companies shall be supported to engage in cross-border mergers and acquisitions by means of merger and acquisition loans, and syndicated loan inside and outside China, and by other ways.
6. All relevant departments shall strengthen the supervision and administration over mergers and acquisitions of listed companies, further improve the information disclosure system, and adopt effective measures to crack down and prevent insider trading, tunneling and other acts in violation of laws and regulations in accordance with the law.

II. Actively encourage cash dividends of listed companies
7. Listed companies shall establish and perfect the system of cash dividends, maintain the consistency, rationality and stability of cash dividend policies, and clarify the priority of cash dividends relative to stock dividends in methods of distribution of profits in the articles of association. Where listed companies meet the requirements of cash dividends, they shall distribute profits by means of cash dividends.
8. It is imperative to encourage listed companies to increase the proportion of cash dividends in the distribution of profits in the light of characteristics of industries they engage in, stage of development and profitability, and those that meet the requirements of dividends shall be encouraged to implement interim dividends.
9. Efforts shall be made to perfect tax policies for encouraging the long-term holding of shares of listed companies, decrease costs for cash dividends of listed companies, and increase the return on long-term investment.
10. Intensify the supervision and administration on information disclosure of cash dividends of listed companies, and enhance the joint inspection on law enforcement.

III. Give strong support for share repurchases of listed companies
11. Where a listed company's share price is lower than the net asset value per share, or its price earnings ratio or book value ratio is lower than the average level of listed companies in the same industry and has reached the preset extent, the listed company may take the initiative to repurchase its shares. Listed companies shall be supported to raise funds for the repurchase of their shares by issuing preferred shares, and bonds and by other ways.
12. Where state holding listed companies are under the above circumstances, their controlling shareholders and actual controllers shall be encouraged to actively increase the holdings of the listed companies according to their own conditions, in order to promote the repurchase of own shares by the listed companies; where the controlling shareholders and actual controllers are capable, they may provide necessary support in terms of capital.
13. Share repurchases of listed companies shall conform to the Company Law and other laws and regulations, and inside decision-making procedures and obligations of information disclosure shall be performed according to the law. Listed companies' directors, supervisors and senior officers shall be honest and trustworthy, as well as diligent and responsible in the process of share repurchases.

IV. In the process of conducting mergers and reorganizations, cash dividends, and share repurchases by listed companies, all relevant departments shall actively give guidance and support according to the principle of facilitating enterprises, and well complete supervision work in accordance with the law and in compliance with regulations.

V. The Circular on Encouraging Mergers and Reorganizations, Cash Dividends and Share Repurchases of Listed Companies shall come into force as of the date of promulgation.