What is H-share "Full Circulation"?

To understand H-share "Full Circulation," let's first get acquainted with "H-shares."

H-shares refer to stocks issued by domestic registered companies and listed on the Stock Exchange of Hong Kong Limited ("HKEX"). Correspondingly, these domestic companies are commonly referred to as H-share companies.

Previously, with few approved exceptions, domestic shareholders of H-share companies were unable to convert their domestic shares, domestically issued shares after overseas listing, and shares held by foreign shareholders for specific reasons such as acquisition of domestic shares, into H-shares for circulation in the Hong Kong stock market.

On November 14, 2019, the "Guidelines for the 'Full Circulation' of Domestic Unlisted Shares of H-Share Companies" (China Securities Regulatory Commission Announcement [2019] No. 22, "Guidelines") came into effect. Since then, domestic shareholders of H-share listed companies have been able to realize secondary market liquidity through H-share "Full Circulation."

The so-called H-share "Full Circulation" refers to the circulation of domestically unlisted shares of H-share companies on the HKEX. The full implementation of the H-share Full Circulation policy has put an end to the longstanding situation where the comprehensive circulation of shares in H-share listings could not be achieved.

It is worth noting that, according to the "Guidelines," once domestically unlisted shares are listed and circulated on the HKEX, they cannot be transferred back to the domestic market. This means that for shareholders who have applied to participate in H-share "Full Circulation," they will be unable to transfer the portion of shares that have already been circulated back to the A-share market when the H-share company is listed on the A-share market in the future.

Key Points for Foreign Exchange Registration of H-share "Full Circulation"

Policy Requirements

The "Notice on Foreign Exchange Administration Issues Related to Overseas Listings" (Circular [2014] No. 54, hereinafter referred to as "Circular 54") laid the groundwork for H-share Full Circulation by clarifying the foreign exchange regulatory requirements for domestic shareholders to increase or decrease their holdings of H-shares. In accordance with relevant regulations, after obtaining approval from the China Securities Regulatory Commission, H-share listed companies applying for "Full Circulation" should carry out foreign exchange registration in accordance with the existing foreign exchange management system specified in Circular 54.

Registration Process

After completing the aforementioned foreign exchange registration, domestic shareholders of H-share listed companies present their overseas shareholding registration certificates to local banks to open resident overseas securities and derivatives accounts for the purpose of handling fund remittances and transfers related to the business. Subsequently, domestic shareholders provide their bank account information to domestic securities firms to open fund accounts for maintaining the correspondence between the fund accounts and the resident overseas shareholding special bank accounts for domestic investors, as well as for controlling the trading quota.

When should domestic shareholders of overseas listed companies register their shareholdings?

According to Circular 54, when domestic registered companies with overseas listings plan to increase or decrease their holdings of overseas listed company shares, their domestic shareholders should carry out overseas shareholding registration at the local foreign exchange bureau within 20 working days before the planned increase or decrease.

Routine Application Documents for Domestic Shareholders of Overseas Listed Companies

Written application from domestic shareholders (including domestic shareholders participating in H-share "Full Circulation") stating shareholding details, changes, etc., accompanied by the "Overseas Shareholding Registration Form" (original copy).

Board of directors or shareholders' meeting resolutions regarding the increase or decrease (if any) (a copy with the company seal affixed).

If approval is required from departments such as the Ministry of Finance and State-owned Assets Supervision and Administration Commission, relevant approval documents from those departments should be provided.

For domestic shareholders participating in H-share "Full Circulation," the approval document from the China Securities Regulatory Commission for participating in H-share "Full Circulation" business should be provided, along with relevant proof regarding the conversion of domestic shares into overseas listed shares (a copy with the company seal affixed).

Summary

In actual practice, different local foreign exchange bureaus may have different attitudes and experiences in approving and reviewing H-share Full Circulation foreign exchange registrations. It is recommended that domestic shareholders participating in H-share Full Circulation fully communicate with the local foreign exchange bureau of their registration location before proceeding with the registration or consider hiring professional organizations to assist with the application for increasing or decreasing shareholdings related to foreign exchange registration.

Sinobravo has rich experience in handling foreign exchange registration for H-share "Full Circulation." We can provide assistance in policy implementation, ensure timely processing, and help domestic shareholders complete the increase or decrease of shareholdings as soon as possible.

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