No.3 Guideline for the Supervision of Listed Companies -- Cash Dividends of Listed Companies

Announcement of China Securities Regulatory Commission [2013] No.43

November 30, 2013

For the purpose of further regulating cash dividends of listed companies, enhance the transparency of cash dividends and practically protect legitimate rights and interests of investors, the China Securities Regulatory Commission has formulated No.3 Guideline for the Supervision of Listed Companies -- Cash Dividends of Listed Companies, which is hereby promulgated for implementation as of the date of promulgation.

No.3 Guideline for the Supervision of Listed Companies -- Cash Dividends of Listed Companies
　
Article 1 For the purpose of regulating cash dividends of listed companies, enhance the transparency of cash dividends and protect legitimate rights and interests of investors, No.3 Guideline for the Supervision of Listed Companies -- Cash Dividends of Listed Companies (hereinafter referred to as the "Guideline") is hereby formulated in accordance with Company Law of the People's Republic of China, Securities Law of the People's Republic of China, Administrative Measures for the Information Disclosure of Listed Companies, the Administrative Measures for the Issuance of Securities by Listed Companies and other provisions.
　
Article 2 A listed company shall firmly establish the awareness of rewarding shareholders, perfect cash dividends system, keep the consistency, rationality and stability of cash dividends policies and ensure the authenticity of cash dividends information disclosure in strict accordance with provisions of Company Law of the People's Republic of China, Securities Law of the People's Republic of China and its articles of association.
　
Article 3 A listed company shall carry out resolution procedure specified in its articles of association when developing profit distribution policies. Board of directors shall go through specialized research and argument on the return for shareholders, prepare definite and clear plans on the return for shareholders, and elaborate the reasons of planning and arrangement and other situation. A listed company shall specify the following items in its articles of association:
1. the resolution procedure and mechanism of its board of directors and shareholders' meetings on profit distribution, especially cash dividends; the detailed conditions, resolution procedure and mechanism of adjusting the existing profit distribution policies, especially cash dividends policies; as well as the measures adopted for seeking sufficient opinions from independent directors and small and medium shareholders.
2. the details of the company's profit distribution policies, especially cash dividends policies; distribution approach of profit distribution; the intervals of profit distribution, especially cash dividends distribution; the detailed conditions for distributing cash dividends; conditions for distributing stock dividends; as well as the minimum amount or percentage (if any) of cash dividends of each period.
　
Article 4 A listed company shall define that cash dividends is prior to stock dividends as for profit distribution approach.
A listed company with cash dividends conditions shall distribute profits by cash dividends.
A listed company, which distributes profits by stock dividends, shall have true and reasonable factors such as the growth of the company and dilution of net assets per share.
　
Article 5 Board of directors of a listed company shall comprehensively consider industry characteristics, development phase, its operation mode, profitability and arrangement of major capital expenditure and other factors to differentiate the following circumstances, and set differentiated cash dividends policies according to procedures specified in its articles of association:
1. if the development of the company is at maturity phase and there is no arrangement of major capital expenditure, cash dividends shall account for at least 80% of distributed profits when the company distributes profits;
2. if the development of the company is at maturity phase and there is arrangement of major capital expenditure, cash dividends shall account for at least 40% of distributed profits when the company distributes profits;
3. if the development of the company is at growth phase and there is arrangement of major capital expenditure, cash dividends shall account for at least 20% of distributed profits when the company distributes profits;
If it is difficult to identify the development phase of the company but there is arrangement of major capital expenditure, the preceding item shall be followed.
　
Article 6 Where a listed company is setting detailed plans on cash dividends, its board of directors shall research and argue in earnest the matters such as timing, conditions and minimum portion of the cash dividends distribution of the company, as well as the adjustment conditions and resolution procedure requirements; while independent directors shall express clear opinions.
Independent directors may collect opinions of small and medium shareholders, put forward cash dividends proposals and directly submit them to the board of directors for deliberation.
Before the detailed plan on cash dividends is deliberated at a shareholders' meeting, the listed company shall, through various channels, take the initiative to communicating and discussing with shareholders, especially the small and medium shareholders, to listening to the opinions and demands of small and medium shareholders, as well as to answering the concerned questions of small and medium shareholders in a timely manner.
　
Article 7 A listed company shall observe on a stringent basis the cash dividends policies as specified in its articles of association, as well as the detailed plan on cash dividends approved at shareholders' meetings after deliberation. Where it is necessary to adjust or modify the cash dividends policies specified in its articles of association, the conditions required in the articles of association shall be satisfied; the resolution procedure shall be followed accordingly after meticulous argument; and approval with more than 2/3 of the voting rights held by shareholders attending the shareholders' meeting shall be obtained.
　
Article 8 A listed company shall elaborate the preparation and implementation of cash dividends policies in annual report, and specially explain the following matters:
1. whether they comply with the provisions in its articles of association or the requirements of resolutions of shareholders' meetings;
2. whether the dividend distribution standards and percentages are definite and clear;
3. whether relevant resolution procedure and mechanism are complete;
4. whether independent directors have performed their duties and played expected roles;
5. whether small and medium shareholders have sufficient opportunities to express their opinions and demands, and whether the legitimate rights and interests of small and medium shareholders are fully protected.
In case of adjusting or modifying cash dividends policies, detailed explanation shall be provided on whether the adjustment or modification conditions and procedures are conforming to rules and transparent.
　
Article 9 If a listed company intends to issue securities, conducts backdoor listing, major asset restructuring, and merger or split, or its right of control is changed due to acquisition, the cash dividends policies of the listed company and corresponding arrangement, the explanations of its board of directors and other information after such raising or issuance, restructuring or change of right of control shall be disclosed in detail in its prospectus or offering plan, reports on major asset restructuring, amendments to equity or acquisition.
　
Article 10 A listed company may issue preferred shares and repurchase shares in accordance with the law.
A listed company shall be supported to repurchase its shares in case its share price is lower than net assets per share (except that the company suffers losses).
　
Article 11 A listed company shall take effective measures to encourage small and medium investors and institutional investors to actively participate in making decisions about its profit distribution matters. Professional guidance roles of intermediaries shall be given full play to.
　
Article 12 Securities regulatory institutions shall pay great attention to the following circumstances in daily regulatory work:
1. if articles of association do not specify definite and clear plan on the return for shareholders or specific cash dividends policies, attention shall be focused on concrete reasons therefor; whether relevant resolution procedure is lawful and complying with rules; whether directors, supervisors and senior management fulfill their duties with diligence and care; and whether independent directors have expressed clear opinions;
2. if articles of associate provide that no cash dividends will be distributed, attention shall be focused on whether such provision complies with actual conditions of the company; whether full self-evaluation has been made; and whether independent directors have expressed clear opinions;
3. if articles of association specify cash dividends policies but profit distribution plan of current year cannot be determined according to existing cash dividends policies, attention shall be focused on whether the company has disclosed specific reasons in its annual report according to requirements; whether relevant reasons conform to actual conditions; and whether independent directors have expressed clear opinions;
4. if the listed company is able to distribute cash dividends in the annual reporting period but it fails do so, and particularly, the listed company does not distribute cash dividends for several years consecutively or cash dividends are very low, attention shall be focused on whether reasons of no cash dividends or low cash dividends are disclosed in detail in announcement of board of directors about deliberation and approval of its annual report; and whether relevant reasons are consistent with actual conditions; continuous attention shall be paid to real purposes of reservation of undistributed profits and revenue; whether independent directors have expressed independent opinions on the rationality of no distribution of cash dividends or low cash dividends; and whether convenience has been provided for small and medium shareholders to participate in decision making according to provisions;
5. if the listed company distributes a large percentage of cash dividends and falls under other circumstances, attention shall be focused on whether relevant decision procedure is lawful and comply with rules; whether directors, supervisors and senior management fulfill their duties with diligence and care; whether independent directors have expressed clear opinions; whether convenience has been provided for small and medium shareholders to participate in making decisions according to provisions; and whether it is obviously unreasonable or whether relevant shareholders abuse their rights to improperly intervene in decision making of the company.
　
Article 13 If a listed company is involved in any of the following circumstances, securities regulatory institutions shall take corresponding regulatory measures:
1. not preparing a definite plan on the return for shareholders according to provisions;
2. not formulating or implementing necessary resolution procedure in view of policies on profit distribution such as cash dividends distribution;
3. not disclosing in detail the preparation and implementation of cash dividends policies in regular report or other report;
4. not distributing cash dividends though there is a clear provision in its articles of association;
5. any other circumstance violating law or provisions found out in cash dividends regulation.
If a listed company's statement or explanation on profit distribution policies is false or omits important contents, securities regulatory institutions shall take corresponding regulatory measures; if administrative penalty shall be given in accordance with the law, penalty shall be given in accordance with Article 193 of Securities Law of the People's Republic of China.
　
Article 14 Securities regulatory institutions shall record the implementation of regulatory measures taken in the regulating process for cash dividends in the credit archive of a listed company according to provision. When a listed company is involved in re-financing and asset restructuring, great attention shall be paid to its credit status in review.
　
Article 15 The Guideline shall be construed by China Securities Regulatory Commission.
　
Article 16 The Guideline shall come into force as of the date of promulgation.