Since around 1999, an increasing number of VIEs have conducted initial public offerings on U.S. Stock Exchanges. While the VIE structure is most common on the NYSE and NASDAQ, it can also be VIE structure is only used on overseas-listed Chinese private companies. In 2017, approximately 20 Chinese companies using VIE structures conducted or filed for initial public offerings (IPOs) in the U.S. VIEs are also closely related to the concept of a … HKEx Listing Decision 43-3. h�bbd``b`��kAD�`M�@��(���$��A�*@B�HHO�@"�9#� ��������_ f$ %%EOF %%EOF to successfully list in the United States, and also became a magic weapon of Chinese … %PDF-1.5 %���� Council of Institutional Investors . ; retail … 2383 0 obj <>stream The VIE structure consists of at least three core entities: a Chinese company with legitimate operations (referred to as the VIE or OpCo); a wholly foreign-owned enterprise (WFOE) established as an intermediary in China; and an offshore shell On October 29, 2020, Ninebot, a leading supplier of electric scooters incorporated in the Cayman Islands, went public on China’s Science and Technology Innovation Board (the “STAR Board”).This makes the company the first foreign-incorporated company using a VIE structure to issue Chinese Depositary Receipts (“CDRs”) in China. Lk���`��*(齥�B���� This post comes to us from Professor Justin J. Hopkins at the University of Virginia’s Darden Graduate School of Business Administration, Professor Mark H. Lang at the University of North Carolina at Chapel Hill, and Professor Jianxin (Donny) Zhao at Emory University. 389 0 obj <>/Filter/FlateDecode/ID[<8EEEC7B1E8379848B5701B3088C09D9F>]/Index[371 32]/Info 370 0 R/Length 94/Prev 520116/Root 372 0 R/Size 403/Type/XRef/W[1 3 1]>>stream A��f� �>Қ.�xH���" ����������:�(U�U�wt U0��� NEq��2����$��b>��M�Xv]>8��E6�N��s'00X\iH +e`X � 0 ��0�`? • The VIE structure in effect (1) enables foreign investors, through a … ”) structure is an investment structure used in China which relies on a series of contractual arrangements to enable a foreign investor to control (but not directly own) and obtain economic benefits from an operating company. China is less likely to regulate the variable interest entity VIE structures of internet companies a relief for those that list overseas. The VIE structure is best understood by looking at a specific company case in which ownership is deliberately obscured by a series of shell companies. Companies with VIE operations in China typically try to conduct as much of the business as they can justify in the WFOE. A note on the variable interest entity (VIE) structure that is commonly used for Chinese companies. In the following ten years, VIE structures provided a mature model for Chinese Internet companies (Tencent, Baidu, Youku, RENN, Jiayuan, Tudou, etc.) %PDF-1.5 %���� Buyer Beware: Chinese Companies and the VIE Structure. A large number of very large companies operate in China’s Internet and telecom sector as VIEs. Chinese e-commerce companies turned to the VIE structure as a means to circumnavigate China’s restrictions against foreign ownership. The China Securities Regulatory Commission (“CSRC”), hence, permits a wide range of high-tech companies, including those operating using the much questioned VIE structure, to issue shares or CDRs on the STAR Board, although subject to stringent … � ��c~7` �O��d Y����WP8��x�{Thx�u�)�a�g. It is also not used with private companies listed on Chinese stock exchanges. endstream endobj 2358 0 obj <. �d�qk>#A� ������D 笔�o*���_� x ,�zr__ImSV���A��~�н�2Q�)c��2�G�~�� In essence a VIE structure refers to a structure whereby an entity established in China which is fully or partially foreign owned ("Controlling Company") has control over an operating company ("Operation Company") which holds the necessary license(s) to operate in … Once the VIE is established, the Chinese company and the VIE establish a contractual relationship in which the VIE received the profits from the Chinese company and … endstream endobj startxref h�b```��@��9�I�sV�ζ:memi�S�� �a�qMox$��HX��k�� 2357 0 obj <> endobj Impact on the VIE Structure. There has also been no These VIEs control the China’s Internet, e-commerce and cloud computing sectors. The VIE structure designed to circumvent regulations. �50{1�8��½�� ȿd�@��+���w�a ѐ)�Y��rT/���A��A�Du0�w40Vt�Tt4`d�3�|��@, Yet every company has eventually received a sign-off on their operations, suggesting the SEC is looking more to highlight the risks to investors than ban the structure outright. In July, 2019, S&P Global Ratings updated its risk assessment of Chinese companies using the VIE structure and concluded that the likelihood of regulatory action against such structures had diminished because of the passage of … For example, SINA (NASDAQ:SINA) faced an activist challenge in … First appearing in 2000, the VIE structure was invented to circumvent foreign ownership restrictions under Chinese laws, which used to forbid foreign ownership of Chinese companies in many industries, including mining, steel, and telecommunications. In order to circumvent the Chinese government’s restrictions on foreign investment in the value-added telecommunications industry, Sina adopted the VIE structure. 0 In Dangdang’s case, it appears that they intend to conduct procurement, fulfillment and warehousing activities in the WFOE (except for audio and video products that the WFOE is prohibited by law from handling). ; media companies such as Focus Media, Vision China Meida and Bona, etc. Introduction to listing of PRC companies on HKEx 4 15 1 。VIE structure 。Key requirement of Main Board listing on HKEx 。Requirements for a listing –Hong Kong vs U.S. 21 30 39 ... International listing venue of choice for Mainland China companies Baidu, Sina and Alibaba are only a few of the hundreds of VIEs currently operating in China. It is not used for State-controlled companies like PetroChina or China Life, even when they are listed overseas. However, most Chinese companies still consider a VIE stake to be equivalent to a direct stake. VIE structures are well established, and have encountered few significant issues since they were first introduced in 2000. This business structure, called a variable-interest entity, became common among Chinese companies because Beijing restricts foreign investment in certain sectors, such as the internet. Risk of China authorities declaring structure illegal – thought harm to Chinese economy makes this unlikely. All of China’s major Internet companies that list on U.S. exchanges use the VIE structure as a means of circumventing Chinese restrictions on their access to foreign capital. Even though the Chinese government holds a negative attitude towards VIE structures, there is no clear prohibition against the use of a VIE structure in most industries in China, except for a few industries such as online gaming. hޤ�mk�0ǿʽߊ�{�d(��kؠۋm���^kRC���۷�Ir�4MӴ�8z:�.���2U,P� -i����R�!Z�R�Yd�xp.�pl�V"�@ɶ� [�l���Z��f��j�TV�������n�ٙ���}�No:ͻ���|3�����bލNj?�G�K�`խ���?տ3Z��,7/�C]�|��Y{5�Og Xs����| Typical VIE Structure . Listing Decision 43-3 on VIE structures first issued in 2005 – updated several times, most recently in April 2014. D�c�����|�_�4���m�}�H��m�X��}�(���C��)#�W�?z�v���x �|���Y�z��0G��Z���K)7�"M_�=?4[�zդ]�7�l~�Hg.��h�j�ۓv��No��:Mö)��gs^�&��35q����.m���]���~�MN�*#��ONx���� � ��nx�c����(�L�Y�@ As discussed above, VIE structures have been a gray area in the Chinese legal system. ��Q�A���a���k��34���*}�y�@b������ �.��P���a`?�H}#����u��b`w�e`x h�bbd```b``f�5 �� ,�D2�I�&�,˴�6��@��L&� �LVv qvɝ $��b`bd`d��) �30�}0 w7 July 22, 2019. A variable interest entity (VIE) refers to a legal business structure in which an investor has a controlling interest, despite not having a majority of voting rights. 2370 0 obj <>/Filter/FlateDecode/ID[]/Index[2357 27]/Info 2356 0 R/Length 77/Prev 251275/Root 2358 0 R/Size 2384/Type/XRef/W[1 2 1]>>stream 402 0 obj <>stream First Foreign Company With VIE Structure Goes Public in China ... U.S. funds seeking to dispose of assets in the U.S. would typically have received bids from one or more Chinese companies. On October 29, 2020, Ninebot, a leading supplier of electric scooters incorporated in the Cayman Islands, went public on China's Science and Technology Innovation Board (the “ STAR Board ”). ; private education companies such as New Oriental, Global Education & Technology Group and AMBOW Education, etc. endstream endobj 372 0 obj <>/Metadata 24 0 R/Pages 369 0 R/StructTreeRoot 47 0 R/Type/Catalog>> endobj 373 0 obj <>/MediaBox[0 0 595.44 841.68]/Parent 369 0 R/Resources<>/ProcSet[/PDF/Text/ImageB/ImageC/ImageI]/XObject<>>>/Rotate 0/StructParents 0/Tabs/S/Type/Page>> endobj 374 0 obj <>stream The VIE structure operates through a network of contracts between China and an offshore entity based in a low-tax jurisdiction. endstream endobj startxref X�;@*����D� @� ��]� SP Global Ratings revisited the VIE risk of Chinese companies last week, saying that the likelihood of … It has since delivered comment letters to almost all Chinese companies listed in the US, often drilling into their VIE structures. n�v�i|����ͩ��sپ/f��M��bG� d�J|O��!d�����>��=��� A VIE Structure typically involves contractual arrangements pursuant to which an offshore holding company (the “Offshore SPV”) (usually through a wholly foreign-owned enterprise (“WFOE”) established in China) controls and receives the economic benefits of a Chinese onshore operating entity (the “VIE”) whose shareholders would normally be PRC nationals (the “Nominees”). 371 0 obj <> endobj The bar is high for venture companies that have not been established for long and have yet to … -��P`� HKSE generally allows listing of applicants using a VIE structure provided: 0 Initially, such dismantling was aimed at facilitating the privatization of overseas-listed Chinese companies seeking domestic listing in the PRC. In recent years, more than one hundred Chinese companies have adopted the VIE structure for their offshore listings, including internet companies such as Alibaba, Tencent, Baidu, Sina, Tudou, etc. ` �� In China, companies are required to pass rigorous screening in terms of profit size in order to be listed on the domestic stock market . Take “variable interest entities” (VIEs), a kind of corporate architecture used mainly by China’s tech firms, including two superstars, Alibaba and … The note explains the history and origins of the structure, the elements of the structure, the key contracts that make up the structure and the key clauses required in each contract to give effect to the structure. This makes the company the first foreign-incorporated company using a VIE structure to issue Chinese Depositary Receipts (“ CDRs ”) in China. 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