HK-listed red chips return to mainland for listings by spinning off business

In recent years, Chinese capital markets have gradually started to lead the boom in capital markets around the world. For a long time, there has been a marked difference in the value of the H -share and A-share markets. An increasing number of large enterprises have broadened financing channels by virtue of the A+H model. Certain enterprises that have erected a red-chip structure are now giving up on offshore markets, demolishing their red-chip structures and returning to the A-share markets on the mainland.

In contrast with the traditional return of red chips to mainland markets, at the end of 2013 Digital China Holdings smoothly returned to A-shares from H-shares through a spin-off and backdoor listing, opening a new means of financing for companies listed offshore.

On 12 July 2013, Digital China delivered a letter to Hong Kong Exchanges and Clearing (HKEx), applying to spin off its subsidiary Digital China Information Service (DCITS), with the latter to make a backdoor listing on the Shenzhen Stock Exchange using *ST Taiguang (*ST before a company name indicates there is a risk of delisting). On 26 December, *ST Taiguang published a new share listing report. The 340 million new shares issued by *ST Taiguang to merge DCITS by absorption and raise ancillary funds were listed on 30 December.

Lai Jihong (tel: +86 755 3325 6898; email: laijihong@zhonglun.com) and Chen Limin (tel: +86 755 3325 6900; email: chenlimin@zhonglun.com) are partners at Zhong Lun Law Firm in Shenzhen