China's Ministry of Finance and the State-owned Assets Supervision and Administration Commission (SACAC) jointly issued a draft regulation here Thursday on prohibiting management buyouts (MBO) of large state-owned or state-controlled enterprises.

In small and medium-sized state enterprises, however, MBO reform is allowed but strictly regulated by the draft regulation on Management Buyouts of State Owned Enterprises (SOEs).

Anonymous sources from SACAC told Xinhua that the decision was made to secure an ordered transfer of state properties and to facilitate the SOE reform.

While MBO has been increasingly used to make state-owned companies into private ones in recent years, managers were often found cheating or engaged in malpractice damaging the interests of employees, investors and financial institutions but bringing themselves private gains.

To remedy the situation, this regulation stipulates that MBO reform in small and medium-sized companies must be strictly supervised by ownership holders. Management is not allowed to interfere with the establishment of transfer plans, liquidation, financial auditing, assets evaluation and the choice of intermediary agencies.

The regulation requires all MBO operations to be conducted through ownership exchange agencies designated by the ownership holders. Meanwhile, all transfer information must be made public. No exclusive clauses favorable to a special management level will be allowed.

The regulation also forbids indirect ownership transfer through the third party because of the difficulty of finding out the identity and financial status of the real transferees.

Besides, management that auditing authority finds responsible for their companies' economic losses or involved in deliberate transfer of companies' net assets and other malpractice jeopardizing the security of state properties will have their qualifications revoked.

The regulation does not apply to the ownership transfer of SOEs in financial sectors and the state equities transfer of listed SOEs.

Source: Xinhua