China facilitates faster public market exits for PE and VC investors

Venture capital funds that have been invested in businesses for more than five years are no longer subject to any share sale restrictions once lock-up periods expire, according to a statement from the China Securities Regulatory Commission (CSRC). Meanwhile, private equity investors have been included in a reverse-linking scheme launched for VCs in 2018: the longer they have held certain investments, the faster they can exit on listing.

Ownership thresholds that had to be met for investors to qualify for this scheme have also been removed. The CSRC said the change wouldn't lead to increased liquidity pressure in the market because the stakes held by qualified investors are very small.

China's strict exit regime was designed to stop rapid exits and subsequent price collapses. In 2015, the CSRC imposed a temporary ban on any stock divestments by major shareholders and members of companies' senior management teams. This lasted six months. More specific guidelines emerged later: within any 90-day period, an investor holding a stake of 5% or above cannot offload more than 1% through a brokered sale and 2% through a bulk sale.

The reverse-linking scheme was introduced to speed up exits for VC investors - restricted to those that backed technology start-ups from an early stage - and encourage reinvestment of the proceeds. The latest change is part of wider efforts to alleviate the economic impact of the coronavirus outbreak. 

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• Topics
• Greater China
• Regulation
• Open market
• regulation
• China
• CSRC