H-share Full Circulation Programme and Share Monetisation and Financing Transactions

In November 2019, the China Securities Regulatory Commission (the “CSRC”) announced the full launch of the full circulation of H-shares (the “Full Circulation Programme”) following an initial pilot programme. Final rules regulating registration, custody and transaction settlement were published jointly by China Securities Depository and Clearing Corporation Limited (“ChinaClear”) and the Shenzhen Stock Exchange (the “SZSE”) on 31 December 2019.

Launched more than a decade after the A-shares market underwent similar reforms, the Full Circulation Programme has important policy and market implications and consequences, one of which is the unlocking of new methods of monetisation and financing for holders of “domestic unlisted shares” in H-share companies. However, even after conversion into freely-transferrable “foreign listed shares”, the shares themselves remain held onshore and are subject to Mainland Chinese laws and regulations (for this reason, in this alert, we refer to such shares as “onshore H-shares”). Consequently, it is crucial for shareholders looking to monetise or raise finance base on such shareholdings to familiarise themselves with such laws and regulations, understand the potential issues that may affect them and be ready to put in place work-arounds.

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