China: New guidelines issued

On 10 January 2025, the China Securities Regulatory Commission (CSRC) issued the Takeover Disclosure guidelines* because of variations in interpretation of substantial shareholding filing rules. This snapshot highlights the impact of the guidelines.

Thresholds (a reminder of the current rules)

By way of reminder of what the rules require, the following disclosure thresholds apply to substantial shareholding disclosures in China. Disclosure is required when a person or corporation:

• acquires an interest of 5% or more in the total issued voting shares in an issuer (the Initial 5% Threshold) and
• holds 5% or more in the total issued voting shares in an issuer and there is an increase or decrease of 5% in their holding (whether such increase or decrease results from a single transaction or multiple transactions over time) (the Subsequent 5% Threshold) and
• holds 5% or more in the total issued voting shares in an issuer and there is an increase or decrease of 1% in their holding (whether such increase or decrease results from a single transaction or multiple transactions over time) (the 1% Threshold)

The 1% Threshold differs from the Subsequent 5% Threshold mainly in that the shareholders are not obligated to freeze trading when triggering the 1% Threshold and the contents and form of such disclosure may be less onerous. 

*These are available here, in Chinese only: Takeover Disclosure Guidelines

Key interpretations using the new guidelines

Threshold movements: 

Previously, there was some ambiguity between the interpretation of subsequent threshold triggers around the strict reading of the letter of the law versus market interpretation and practice. The new guidelines set out the CSRC view on this.

The guidelines now state that disclosure is triggered on:

• integer multiples of 5% (10%, 15% etc) for the Subsequent 5% Threshold and freeze on holdings
• integer multiples of 1% (6%, 7%, 8% etc) for the 1% Threshold

Timing: 

The guidelines now refer to the disclosure periods in terms of trading rather than calendar days and the disclosable event day should be included in the disclosure period. 

In summary:

• the disclosure should be made within 3 trading days for the Initial 5% Threshold and the Subsequent 5% Thresholds
• the 3-trading-day period must be calculated from and including the day of the disclosable event
• 1% disclosures are made by a notification to the issuer and an announcement on the trading day following such increase or decrease
• the freeze on holding period for the Initial 5% Threshold refers to the period from the date of the disclosable event to the date of the announcement, inclusive of both the date of the disclosable event and the date of the announcement
• the freeze on holding period for the Subsequent 5% Threshold begins on the date of the disclosable event and extends for an additional 3 trading days, starting from the next trading day following the date of the announcement.

Actions by the issuer that affect the denominator: 

The guidelines give further examples of additional issuer actions that will be covered by these rules. If the disclosure threshold is triggered as a result of issuer’s changes to share capital (such as new share issuance, share capital reduction, conversion of convertible bonds, etc.) usually it will be the issuer who is required to make the relevant announcement. The investor is not usually required to make the disclosure / announcement or comply with the freeze on holding requirements.

Summary

The guidelines clarify the regulator’s interpretation on timing and subsequent disclosures. It also extends examples of corporate actions that affect the denominator and potentially disclosure (which disclosures the issuer is responsible for). Changes and modifications in interpretation to long-standing rules demonstrate how rules can change and how important it is to monitor effectively for changes. These changes take immediate effect and will have impact on timing sensitivity and filing trigger prompts.

As always, remember that what regulators require is not universal. For example, Japan requires threshold disclosure based on relative position filings (representing a 1% material change) rather than movement through fixed thresholds, which can be more difficult for investors to track effectively. The impact of issuer corporate actions also varies. For example, in Vietnam, a holder will not trigger a disclosure requirement in the event of changes in the total shareholding due to an issuer issuing new shares. However, in Singapore increases or decreases in the issuer's share capital must be taken into account by the disclosing investor. And whilst trading days often apply to the disclosure period, some countries will use calendar days. A particularly interesting example of this is the Philippines, where whether it is business days or calendar days varies depending on which filing is required. Rules should always be assessed on a national basis.