Strengthen performance compensation supervision and support environmental protection companies’ listing and financing

On February 8, the China Securities Regulatory Commission announced its reply to a proposal made at the Fourth Session of the 12th National People's Congress and its reply to a proposal made at the Fourth Session of the 12th National Committee of the Chinese People's Political Consultative Conference. In the above two replies, the China Securities Regulatory Commission stated that it has increased the review of major asset reorganizations to form a regulatory deterrent; it has strengthened performance compensation supervision to guide the return of market valuations, and stated that it will continue to support the listing and financing of energy-saving and environmentally friendly companies that comply with national industrial policies and issuance and listing conditions, and encourage energy-saving and environmentally friendly companies to use the capital market to become bigger and stronger.

In its reply to the "Proposal on Strengthening the Supervision of the Review and Disclosure of Goodwill in Mergers, Acquisitions and Reorganizations", the China Securities Regulatory Commission stated that in recent years, listed companies have increasingly purchased assets from specific objects other than their controlling shareholders, actual controllers or related parties controlled by them. The valuation appreciation rate of the underlying assets has also increased year by year, resulting in the continuous improvement of the goodwill of listed companies. To this end, the China Securities Regulatory Commission focuses on information disclosure, fully discloses the rationality of valuation and related risks, and stipulates that major asset reorganizations should fully disclose the basic situation of using different valuation methods, the differences and reasons for the results of different valuation methods, and the reasons for the final valuation conclusion. At the same time, review efforts will be intensified to form a regulatory deterrent; performance compensation supervision will be strengthened to guide the return of market valuations.

On the other hand, the performance commitments of the acquired companies increase correspondingly with the growth of the listed company's goodwill. There is uncertainty about whether the commitment subject can honor the performance compensation commitment as promised, which greatly affects the interests of the listed company and small and medium-sized investors. In this regard, the China Securities Regulatory Commission has strengthened information disclosure supervision in daily supervision of mergers, acquisitions and reorganizations to fully disclose risks.

In its reply to the "Recommendations on Vigorously Promoting the Development of Energy-saving and Environmental Protection Technology Industries," the China Securities Regulatory Commission stated that energy-saving and environmental protection technology-based small and medium-sized enterprises can make full use of the capital market to develop and grow. The China Securities Regulatory Commission has always actively supported private equity investment funds in participating in energy conservation and environmental protection industry investments, and by supporting the establishment of energy conservation and environmental protection industry investment funds and government guidance funds, it attracts social capital to invest in energy conservation and environmental protection enterprises, and promotes the development of energy conservation and environmental protection technology industries and the transformation of results. In the next step, the China Securities Regulatory Commission will take multiple measures to further promote private equity funds to better support the development of start-up and technology-based small, medium and micro enterprises.

It is understood that as of June 2016, the number of energy-saving and environmental protection companies listed on the SME Board and GEM had reached 70 and 59 respectively. In the next step, the China Securities Regulatory Commission will continue to support the listing and financing of energy-saving and environmental protection companies that comply with national industrial policies and issuance and listing conditions, and encourage energy-saving and environmental protection companies to use the capital market to become bigger and stronger.