A Chinese company that wishes to offer D-shares needs to secure the prior approval of the China Securities Regulatory Commission (CSRC) and comply with China’s Company Law, Securities Law and related laws and regulations. Additionally, to offer D-shares in Germany, the issuer is also required to pass review by the Federal Financial Supervisory Authority (BaFin) and the stock exchange.
The responsibility for regulating the offering and listing of stock in Germany is exercised by BaFin and the stock exchange, with BaFin being responsible for review of the prospectus and the stock exchange for review of the listing conditions. Nevertheless, the division of the review work between BaFin and the stock exchange is clearly demarcated, without duplicated review of any legal document.
The core of a review of a stock offering in Germany is information disclosure, and the stock exchange’s review of listing is also pro forma, without making any substantive judgment of the issuer. BaFin conducts a completeness review of the prospectus, which does not include review of accuracy. If the prospectus satisfies the requirements of completeness, consistency and understandability, it will be approved. Neither BaFin nor the stock exchange conducts a review of issues relating to the company’s substantive operations, such as its financial position, operating risks, business model, etc., which are assessed by intermediary institutions, including the investment bank, lawyers and auditors, whose determination will then be made thereon and be fully disclosed in the prospectus.
Accordingly, the stock offering system in Germany is built on a foundation of due performance by the intermediary institutions of their duties. The responsibilities of the intermediary institutions are clear and in practice are also strictly performed. In Germany, intermediary institutions attach great importance to their legal responsibilities and the corresponding brand risks in stock offerings and listings and, on the whole, duly perform their duties. The prospectus is the important basis for the attribution of any liability and, pursuant to German laws, a prospectus shall expressly state who is liable for its authenticity, and shall be signed by the relevant entities such as the issuer, the investment bank, and the lawyers. Furthermore, the finance section of the prospectus is required to be audited by an auditor institution, which shall bear liability in respect of the finance section.
With respect to an initial public offering, the issuer is required to submit its prospectus to BaFin, and once it has secured its approval, it will be required to submit a listing application to, and secure the approval thereof by, the China Europe International Exchange (CEINEX). In practice, the procedures for submission of the prospectus to BaFin and the application to CEINEX for listing approval may be accomplished simultaneously, but CEINEX can only announce that the public offering is approved after the prospectus passes the review by BaFin.
BaFin’s review of the prospectus. In Germany, a prospectus shall be provided to the investors for a public offering of D shares. Accordingly, the issuer’s prospectus is subject to review and approval by BaFin in accordance with the uniform standards of the EU. During its review of a prospectus, BaFin focuses on its completeness, consistency and understandability.
Generally speaking, BaFin’s review of a prospectus does not include a review of its accuracy. However, if, in the course of its public offering review, BaFin has reasonable grounds to believe that there is a material error or material omission in the information disclosure, it can suspend the public offering procedure, and if the above mentioned matter is substantiated, BaFin may prohibit the listing and revoke its approval.
Generally BaFin will give its first feedback within 20 working days upon receipt of the documents. If an additional offering transaction is involved or if the issuer is already listed on the regulated market of another EU country, the first feedback will be given within 10 working days. Subsequently, it will enter the feedback, query and response stage. In general situations, the review and approval of a prospectus requires about one to two months.
Review of listing conditions by CEINEX. Once an issuer has submitted its prospectus to, and secured the approval of, BaFin, it can submit a securities access application to the Frankfurt Stock Exchange’s CEINEX. Upon receipt of the applicant’s listing application, CEINEX will conduct a review of the listing conditions. When the issuer submits the application materials to CEINEX, CEINEX will examine the materials for completeness and conduct a preliminary review.
CEINEX’s executive board will conduct its review in accordance with the procedure specified in relevant laws, including that for an initial public offering, a securities or share capital increase, etc. If the application does not satisfy listing requirements, it will require the company to provide additional documentation. If the listing conditions are satisfied, the application will be passed on to CEINEX’s management committee to render a decision on whether to accept the listing. CEINEX’s executive board will then render the final approval and decision. Generally speaking, after approval of the prospectus by BaFin, one to three weeks is required from submission of the listing application to the listing and trading of the stock.
The German capital market is one of the key capital markets in Europe, and the introduction of D shares is of major benefit to qualified mainland Chinese enterprises, expanding the room for cooperation between Chinese and German enterprises and providing a direct platform for capital financing. It has dual significance in terms of introducing Chinese enterprises into the European capital markets and into the EU’s real economy market.
Frank Qu is a senior partner at Dentons
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