China regulator relaxes exit rules for PE, VC firms

The revised lock-up period applies to all PE and VC investors holding minority positions in companies and to VC investors with majority positions that meet certain criteria, the regulator said in a statement. Previously, all controlling shareholders were subject to a 36-month lock-up and required to divest their shares in an orderly manner.

“The development of venture capital funds has broadened the financial channels for small- and medium-sized enterprises, accelerating economic structural reforms and industry upgrades. By translating private capital into China’s real economy, they have become an important force for pushing innovation and entrepreneurship,” the statement said. “Therefore, we’re providing necessary support for venture funds – that are focused on long-term investments and value creation – to exit in the capital market.”

In order to qualify for the 12-month lock-up as a majority investor, a VC firm must have invested in the portfolio company within 60 months of its establishment and remained a shareholder for at least three years prior to the IPO application, a separate statement said. In addition, the company should have fewer than 500 employees, as well as less than RMB200 million ($29 million) in annual revenue and total assets.

The CSRC said it will continue to study and improve existing rules in order to promote long-term venture investment and value creation for start-ups.  

Separately, on May 26 the CSRC announced tighter rules concerning the sale of shares in A-share listed companies by all investors, in particular controlling shareholders or those with stakes of 5% or above. This change is intended to slow the pace at which major shareholders offload their interests and avoid large-scale share dumping, as well as strengthened information disclosure regarding divestments.

For instance, shares sold through block trades after the lock-up has expired should amount to less than 2% of a listed company’s total issued shares in any 90 consecutive days. Institutions that buy shares through block trades are also barred from selling any shares within six months.  

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• Topics
• Greater China
• IPO
• China
• regulation
• CSRC
• Venture