IPO Audit Policy Needs To Be Calibrated: Shareholder Penetration Should Be More Substantial Than Form, And The System Should Be Improved To Reduce The Burden Of Verification

"Insist on substance over form in the shareholder penetration verification process." On Friday (May 28), the relevant person in charge of the Securities Regulatory Commission said in response to a reporter's question about the verification of the information disclosure of IPO shareholders.

In February 2021, China Securities Regulatory Commission (CSRC) issued the guidelines on the application of regulatory rules on information disclosure of shareholders of enterprises applying for IPO (hereinafter referred to as the guidelines), which requires that "if the equity structure of the issuer's shareholders is more than two layers and is a company or limited partnership without actual business operations, if the transaction price of the shareholder's equity is obviously abnormal, The intermediary institution shall penetrate and verify the shareholder layer by layer to the ultimate holder ".

According to the CSRC, since the implementation of the guidelines, the CSRC has urged market entities to regulate shareholders' equity participation in accordance with the provisions and achieved positive results. However, recently, the CSRC has been concerned that in the specific implementation process, some intermediary agencies have expanded the scope of verification for the purpose of exemption. Some shareholders can not penetrate the verification, and some shareholders with a small proportion of shares have to check, which increases the burden of enterprises.

According to a senior investment bank in Beijing, after the issuance of the guidelines, shareholder penetration review has played a substantial role in preventing equity proxy holding, multi-layer nesting, surprise share taking, and low-cost equity acquisition to obtain improper interests. However, it also significantly increases the cost and time cycle of listing“ There are the burden brought by the internal audit of the sponsor institution, and there are also reasons for the imperfection of the system details. "

Affected by the stricter IPO audit including shareholder penetration inspection this year, the number of new shares declared under the registration system has declined significantly. Photo by Gan Jun

Difficult shareholder penetration

"Let the shareholders think of something." In the face of the impenetrable verification of the shareholding entities of the companies to be listed, some securities firms and investment banks in South China said frankly.

"There is really no way to contact the sponsor, but it can't be worn through. It's not the time for the other party to sign an agreement to guarantee that they can muddle through without holding on behalf of others in the past. In case of any improper equity investment discovered by the supervision, I have to replace my own subsequent projects. " The investment bank staff said frankly that shareholder penetration has brought a lot of pressure to the sponsor institutions.

According to the reporter's observation of the 21st century economic report, in the process of moving forward the registration system audit and strengthening the responsibility of sponsor institutions, the pressure of such shareholders to penetrate the examination and deal with it has indeed been transferred to the companies to be listed.

"It took us two or three months to do shareholder equity penetration, but in the end, a few of them couldn't get through, and the sponsor organization suspected that there was proxy holding behavior with us." Some personnel of domestic companies planning to be listed introduced to the 21st century economic report that most of the shareholders suspected to hold on behalf of the company are the old shareholders of the company after equity transfer. They are not investors in the company's previous financing and do not know the details.

After the promulgation of the guidelines, Shanghai and Shenzhen stock exchanges successively issued notices, requiring the companies to be superior to be released from holding shares on behalf of others or illegally holding shares before applying for listing. Meanwhile, the sponsor and lawyer should also check whether there is the situation of holding shares on behalf of others in the history of the company to be listed, whether it is dissolved according to law, and whether it is verified and disclosed in the prospectus the formation reason, evolution, dissolution process, and whether there are disputes or potential disputes. All kinds of new regulations make the market regard IPO shareholders' holding behavior as tiger.

As for the suspected agent holding situation of shareholders, the internal personnel of the above-mentioned proposed listed company disclosed that at present, the company plans to invest by some existing shareholders to purchase the shares in the hands of the suspected acting shareholders, "in fact, it is another financing.".

"There is no guarantee that the potential problems will be eliminated. If the other party (suspected acting shareholder) takes advantage of the opportunity of the company to be listed, he or she doesn't know how to end up in the future and take a step by step." According to the insider, at present, the listing process of its company has been postponed at least, and "neither the company nor the intermediary institution dares to apply for listing blindly before the shareholder information is verified clearly".

It is also affected by the stricter IPO audit including shareholder penetration check this year that the number of new shares reported under the registration system has declined significantly. According to the statistics of CITIC Securities, in the first quarter of 2021, a total of 34 new companies were accepted on the science and technology innovation board and the gem, which was only 11% of the fourth quarter of 2020.

Full penetration of responsibility

While transferring the pressure to the companies to be listed, the sponsor institutions of securities companies also significantly increase the work cost due to the shareholder penetration check.

Prior to that, senior investment banks in Beijing said that from the perspective of supervision, the current routine operation can no longer be used in the verification of shareholders' information of IPO enterprises, and "comprehensive and in-depth verification" is needed to "ensure the authenticity, accuracy and completeness of intermediary conclusions".

According to reports, before the promulgation of the new regulations, the supervision will also require the sponsor institutions to penetrate the verification and step by step to the ultimate natural person, SASAC and listed companies. In general, the sponsor will choose to penetrate into the final equity holders in the IPO link, and sign the commitment letter layer by layer to eliminate the situation of equity proxy holding, unqualified shareholders and interest transmission in the shareholder structure of the issuer.

"It should not work now." The above senior investment bank personage said that the regulatory authorities should require substantial review of the shareholders of the issuer and its penetrating upward equity structure, which will also bring huge workload to investment banks.

According to the CSRC, at present, some intermediary organizations expand the scope of verification for the purpose of exemption. Some shareholders can not penetrate the verification, and some shareholders with a small proportion of shares have to check, which increases the burden of enterprises.

"There are two aspects to the burden of the regulatory roll call: one is that the shareholders can't see through; the other is that the shareholders who hold a small proportion of shares should also be investigated. It is true that the impenetrable situation depends to a large extent on the companies to be listed. However, it is up to the regulatory authorities to check the shareholding ratio, and the sponsor institutions are also forced to increase costs. " There are domestic head securities investment bank personnel said.

Wang Jiyue, a senior investment banker, pointed out that the penetration disclosure of important shareholders is of great significance. Shareholders who hold more than 5% of the shares, or shareholders with a holding profit of more than 10 million yuan according to the expected market value, need to be penetrated because of the possibility of major interest transmission. "But now, many of the investors who have made profits of several million or even hundreds of thousands of shares still need to deduct taxes and fees, Limited by the time cost of six or seven years from the acquisition of shares to the reduction of shareholding, it seems unnecessary to penetrate these scattered individual shareholders, and the transfer of interests will not be so laborious. "

However, in the published rules, there is no explicit provision that the shareholders holding less than a certain proportion of shares can not conduct shareholder penetration check by the sponsor and the issuer.

"At present, we are comprehensive verification, and it is difficult to grasp the regulatory scale." The above-mentioned head securities firm investment bank personnel said that after the CSRC's statement on the issue of shareholder penetration, the current situation of comprehensive equity verification of the proposed listed companies still remains unchanged. Some certified public accountants in South China also said, "the news has not spread in the circle. We all know how to check or how to check.".

In the view of the investment bank, most of the listed companies' equity dispersion is not high, and the cost of large-scale penetration verification is acceptable. But in the process of practical operation, there is also the situation of extremely dispersed equity. The most significant one is the companies that have been listed on the new third board market, and a large number of investors enter the company through the secondary trading of the new third board“ The shareholding ratio is very small, but also to check one by one, there are individual investors themselves forget to buy stocks, can not contact the situation

According to reports, in line with the purpose of "diligence and due diligence", all shareholders of the company to be listed and the recommendation agencies of securities companies will check and leave traces through telephone and on-the-spot visits“ If we don't accept interviews, we will take audio and video as evidence, and the workload is not small. "

"How to define" very little shareholding "? Less than 1 million or less than 500000? This year, the trend of tightening IPO audit is obvious, and the situation that various securities companies have been punished for investment bank recommendation business repeatedly appears. We dare not make our own opinions in this kind of gray area of supervision, and comprehensive verification can ensure that they will not be punished. " The head of the above securities investment bank personnel to speak frankly.

Improving the system to reduce the burden of IPO listing verification

In fact, in the face of various problems conveyed by the IPO market, regulators are also trying to solve them from the system.

On May 28, this year, the CSRC issued the guidelines on the supervision of the stock taking behavior of employees who have left the system, which has been formally implemented since June 1.

According to the relevant requirements, the staff leaving the CSRC system who seek investment opportunities by taking advantage of the influence of their original positions, transfer of interests in the process of entering shares, taking shares during the prohibition period of shares, taking shares as unqualified shareholders, illegal and illegal sources of funds, etc., are considered as improper shares. The intermediary institution shall conduct a comprehensive check on whether the shareholders of the enterprises to be listed have improper shares. If the shares are not properly invested, they shall be cleaned up in time.

However, after the promulgation of the new rules, some market voices said that the CSRC system has a large number of employees leaving their posts, and the relevant information is not transparent. The investment bank recommendation agencies lack the means to identify relevant personnel, which adds a lot of burden to the penetration inspection work of IPO shareholders.

Therefore, on the day of the implementation of the relevant new regulations, the CSRC will start to provide the information query and comparison service for the system resigned personnel. The sponsor institutions that carry out the guidance work can submit the inquiry application to the securities regulatory bureau of the place where the issuer is located before the enterprises planning to make a public offering and listing or those listed on the selective layer of the new third board submit the application for guidance and acceptance. For an issuer that has submitted an application or declaration for guidance and acceptance, the sponsor institution may submit an application for inquiry within one month after the issuance of the notice in accordance with the requirements of the CSRC.

Although in principle, a sponsor can only submit an application for inquiry once to an issuer, the introduction of relevant services does reduce the burden on corporate issuers and intermediaries.

In addition to facilitating the verification of departures from the SFC system, the issue of "ultimate holder", which was controversial in the previous market, has also been resolved.

The guidelines have required that "if the equity structure of the shareholder of the issuer is a company or limited partnership enterprise with two or more layers and no actual business operation, if the transaction price of the shareholder's equity acquisition is obviously abnormal, the intermediary agency shall penetrate and verify the shareholder layer by layer to the ultimate holder". However, there has been some controversy on how to define "ultimate holder".

According to the exclusive report of the 21st century economic report, in April this year, the review center for the listing of the science and technology innovation board and the growth enterprise market has issued the understanding and application of the "ultimate holder" in the shareholder information verification, which kind of subject can be regarded as the ultimate holder in the process of IPO shareholder penetration audit.

Specifically, in addition to natural persons, the "ultimate holder" also includes the following types: public companies such as listed companies (including overseas listed companies), companies listed on the new third board, or enterprises under collective ownership by state-owned holding or management entities (including public institutions and industrial funds controlled by state-owned entities), overseas government investment funds, university endowment funds, pension funds, etc Public welfare funds and public asset management products.

In addition, the foreign shareholder can be regarded as the "ultimate holder" if the intermediary can confirm by appropriate verification that there is no domestic entity in the investor of the foreign shareholder, and fully demonstrates that there is no obvious abnormality in the price of the issuer in which the foreign shareholder shares.

Although the exchange still puts the responsibility of judging whether the shareholder is the "ultimate holder" to the investment bank sponsor, requiring it to "confirm by appropriate verification". However, the release of relevant rules has also played a role in reducing the burden of IPO listing.

In response to the reporter's question, the relevant person in charge of the CSRC said that the CSRC would try to quantify the principle of importance while preventing the use of listing for benefit transfer and illegal "wealth making" situations. If the shares are small and do not involve illegal "wealth making", the intermediary agencies can normally promote the audit after giving opinions based on facts.

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