The Ministry of Finance ("MOF") has recently issued the Circular on Further Clarifying Issues Concerning Equity Management Related to the Capital Increase for State-owned Financial Enterprises (the "Circular"), with effect from December 20, 2019.
According to the Circular, if the proportion of state-owned equity in a state-owned financial enterprise itself changes as a result of a capital increase, the enterprise must report such change to the finance department at the same level to go through necessary formalities; if the state no longer has the control over the invested financial enterprise as a result of a capital increase, the finance department must report the same to the people's government at the same level for approval. In addition, the Circular requires that a capital increase for a state-owned financial enterprise should conform to the enterprise's development strategy, and the enterprise shall conduct an effective feasibility study and prepare a plan for the capital increase to clearly specify the amount of the capital increase, the use of additional capital, conditions the investors should meet, the criteria of investor selection, and the ways of investor selection. Moreover, the Circular expressly states that the enterprise to receive the additional capital shall examine the eligibility of the prospective investors, and the new investors to be introduced as a result of the capital increase shall fulfill the requirements regarding the qualification of shareholders. Unless otherwise stipulated by laws and regulations, the additional capital provided for the capital increase purpose must be real and legal self-owned funds and cannot be the capital under custody, debt capital and other non-self-owned funds; where capital contribution is made in non-monetary property, the assets appraisal shall be carried out according to law.