​A-share firms to see sterner information disclosure rules

The two A-share stock exchanges are seeking a higher degree of transparency from China's listed firms, as reported by the Shanghai Securities News today.

Last Friday, the Shanghai Stock Exchange (SSE) and the Shenzhen Stock Exchange (SZSE) both released a consultation paper that aimed to subject the A-share firms to sterner information disclosure requirements.

Of the many highlights in this draft document, one is the lowering of the threshold for information disclosure.

It requires that for a shareholder whose equity shares equal or exceed five percent of all the issued shares in a company, a one percent change in his/her stake will be enough to trigger a need for information disclosure.

This adjustment, marking a sharp contrast with a threshold of five percent change in the past, suggests a fine-tuning in the regulatory stance over acquisitions.

Acquisition efficiency will no longer be a priority as the acquirers see increased costs and difficulties. Instead, the focus will be a more even playing ground and better information access for small and medium shareholders.

Over the years, the rules on the acquisition of listed firms mainly aimed to boost efficiency and hostile takeovers were adequately allowed. These latest adjustments reflect a change in the regulatory thinking, believed Mr. Yin Zhongyu, head of the M & A division at the China Great Wall Securities Co., Ltd.

Another highlight is the new demand for a "see-through" type information disclosure, which aims to reveal the actual source of funding and a genuine picture of the ownership structure for a listed firm.

A shareholder must specify whether his investment comes from his own money, a bank loan, or an investment fund. A firm's ownership structure should be detailed to the extent of an individual, a state asset owner, or the agreements forged among shareholders.

These sterner information disclosure requirements don't mean a ban on acquisition. They will trouble those who use complex transactions and high-leverage to seek illegitimate interest and market manipulation, commented Mr. Yuan Lizhi, a lawyer.

The higher costs of an acquisition will deter short-term investors, but not those who want to pursue a long-term interest in the target company, believed a professional in a listed firm.