Professional Interpretation

Abstract: In recent years, with the rapid development of private equity funds, state-owned enterprises (as well as central and local governments or affiliated departments and directly affiliated institutions directly as capital contributions, the same below) have been deeply integrated with private equity funds through various forms. How to determine the state-owned nature of private equity funds, and whether private equity fund transfer of state-owned assets must be entered into the exchanges?

I. don’t need to be done in exchanges: the state owned company as transferee

According to Law of the People's Republic of China on State-Owned Assets of Enterprises, Article 54 Transfer of State-owned assets shall comply with the principles of transaction on the basis of compensation and price-value consistency, openness, fairness and impartiality.

Transfer of State-owned assets shall be publicly carried out at legally established equity exchanges except the circumstances in which direct transfer through agreement is applicable according to the State's provisions……

This article specifies that the exchanges is a must for only the transfer of state-owned assets. Transfer of State-owned assets shall mean the act of transferring the rights and interests that are formed out of the capital contribution made by the State in an enterprise to any other institution or individual. In short, it only requires an over-the-counter transaction when it is an equity transfer. State-owned companies do not need to enter the exchanges when they are the transferee.

II. Must in the exchanges: the state owned company as transferor

Accounting to Measures for the Supervision and Administration of the Trading of State-owned Assets of Enterprises: Article 13 In principle, property rights transfer shall be carried out in public. The transferor may, based on the actual situation of the enterprise and the work schedule and by means of combining information pre-disclosure and official disclosure, disclose the information on property rights transfer by stages at the websites of equity exchanges to publicly solicit the transferee. The official information disclosure period shall be no less than twenty (20) working days. If the actual control of the enterprise transferring subject matters is shifted due to property rights transfer, the transferor shall, within ten (10) working days after the transfer is approved, make information pre-disclosure through equity exchanges, and the disclosure period shall be no less than twenty (20) working days.

Transfer of state-owned equity need to follow certain procedures, including Feasibility study, plan demonstration, auditing, assets evaluation, and carry out the transaction in the exchanges. Otherwise the transfer could be invalidated, therefore the equity of a limited liabilities corporation held by a state-owned company need to be transferred in the exchange.

III. state-owned private fund’s ownership transfer

According to Measures for the Supervision and Administration of the Trading of State-owned Assets of Enterprises: Article 66 The transfer of enterprise property rights (shares) formed by investment made by various private equity funds set up by governments shall be subject to relevant laws and regulations.

From above we know that, the transfer of ownership of the enterprises owned government-established equity fund won’t be restricted by Measures for the Supervision and Administration of the Trading of State-owned Assets of Enterprises, which means it don’t have to be an over- the – counter transaction. In practice, the funding and establishment of the government guidance fund is managed by the financial department, while the registration and issuing of the Fund is under the responsibility of the China Fund Industry Association, and is actually included in the management scope of the China Securities Regulatory Commission. From this point of view, the state is actually managing the guiding funds and their sub-funds as other financial enterprises. Therefore, the procedures for the government to guide the fund to withdraw from the Sub-Fund need not fulfill the procedures of the SASAC regarding the transfer of state-owned assets.