Correspondence 0001193125-23-233950 from Vipshop Holdings Ltd (VIPS)
Vipshop Holdings Ltd
Date: Sept. 13, 2023 · CIK: 0001529192 · Accession: 0001193125-23-233950
AI Filing Summary & Sentiment
File numbers found in text: 001-35454
Referenced dates: August 15, 2023
Letter
VIA EDGAR Division of Corporation Finance Office of Trade & Services Securities and Exchange Commission RE: Vipshop Holdings Limited (the “Company”) Form 20-F for Fiscal Year Ended December 31, 2022 Filed April 19, 2023 File No. 001-35454
Dear Ms. Chaudhry, Ms. Brillant, Mr. Pattan, Ms. Thompson, Mr. Nalbantian, and Ms. Beech:
This letter sets forth the Company’s responses to the comments contained in the letter dated August 15, 2023 from the staff (the “Staff”) of the Securities and Exchange Commission (the “Commission”) regarding the Company’s annual report on Form 20-F for the fiscal year ended December 31, 2022 filed with the Commission on April 19, 2023 (the “2022 Form 20-F”). The Staff’s comments are repeated below in bold and followed by the Company’s responses thereto. All capitalized terms used but not defined in this letter shall have the meaning ascribed to such terms in the 2022 Form 20-F.
Form 20-F for Fiscal Year Ended December 31, 2022
Item 3. Key Information, page 4
1. In future filings, please disclose prominently in this section that you are not a Chinese operating company but a Cayman Islands holding company with operations conducted by your subsidiaries and through contractual arrangements with a variable interest entity (VIE) based in China and that this structure involves unique risks to investors. If true, disclose that these contracts have not been tested in court.
In response to the Staff’s comment, the Company respectfully proposes to revise the referenced disclosure as shown below in its future Form 20-F filings (with deletions shown as strike-through and additions underlined), subject to updates and adjustments to be made in connection with any material development of the subject matter being disclosed. Page reference is made to the 2022 Form 20-F to illustrate the approximate location of the disclosure.
Division of Corporation Finance
Office of Trade & Services
Securities and Exchange Commission
September 13, 2023
Page
Page 4:
Our Holding Company Structure and Contractual Arrangements with the Consolidated Variable Interest Entities
Vipshop Holdings Limited is not an a Chinese operating company but a Cayman Islands holding company with no equity ownership in its the consolidated variable interest entities and their subsidiaries. We conduct our operations in China through (i) our PRC subsidiaries and (ii) the consolidated variable interest entities with which we, but maintains contractual arrangements with the consolidated variable interest entities and is considered the primary beneficiary of these entities, whose financial results are consolidated in Vipshop Holdings Limited’s consolidated financial statements under the U.S. GAAP for accounting purposes. The contractual arrangements may not be as effective as direct equity ownership in the consolidated variable interest entities and their subsidiaries, and the relevant government authorities may challenge the enforceability of these contractual arrangements. We conduct our operations in China through (i) our PRC subsidiaries, and (ii) the consolidated variable interest entities and their subsidiaries. PRC laws and regulations restrict and impose conditions on foreign investment in internet content, value-added telecommunication-based online marketing and mobile application distribution businesses, and internet-based audio and video services. Accordingly, we operate these businesses in China through the consolidated variable interest entities and their subsidiaries, and such structure is used to provide investors with exposure to foreign investment in China-based companies where PRC laws and regulations prohibit or restrict direct foreign investment in certain operating companies, and rely on contractual arrangements among our PRC subsidiaries, the consolidated variable interest entities and their nominee shareholders to direct the business operations of the consolidated variable interest entities and their subsidiaries. Revenues contributed by the consolidated variable interest entities accounted for 2.3%, 2.6%, and 1.1%, and % of our total net revenues in 2020, 2021, and 2022, and 2023, respectively. However, contractual arrangements may not be as effective as direct ownership in providing us with control over the consolidated variable interests and their subsidiaries and we may incur substantial costs to enforce the terms of the arrangements. As such, the VIE structure involves unique risks to investors of our Cayman Islands holding company. For a more detailed discussion of those risks, see “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Corporate Structure.” In addition, the legality and enforceability of the contractual agreements by and among our PRC subsidiaries, the VIEs, and their respective shareholders, as a whole, have not been tested in a court of law in China as of the date of this annual report.
2. In future filings, please disclose that a majority of your operations are located in China, if true, as opposed to that they are “primarily” in China. In addition, in future filings please disclose the location of your auditor’s headquarters.
In response to the Staff’s comment, the Company respectfully proposes to revise the referenced disclosure as shown below in its future Form 20-F filings (with deletions shown as strike-through and additions underlined), subject to updates and adjustments to be made in connection with any material development of the subject matter being disclosed. Page reference is made to the 2022 Form 20-F to illustrate the approximate location of the disclosure.
Division of Corporation Finance
Office of Trade & Services
Securities and Exchange Commission
September 13, 2023
Page
Page 6:
Our China Operations
We face various risks and uncertainties relating to doing business in China. A majority of ourOur business operations are primarily conducted in China, and we are subject to complex and evolving PRC laws and regulations. For example, we face risks associated with regulatory approvals on overseas offerings, anti-monopoly regulatory actions, and oversight on cybersecurity, data security and data privacy, as well as the prospective uncertainties as to the ability of the Public Company Accounting Oversight Board, or the PCAOB, to inspect or investigate completely auditors located in China, such as our auditor headquartered in Hong Kong, which may impact our ability to conduct certain businesses, accept foreign investments, or list and conduct offerings on a United States or other foreign exchange. These risks could result in a material adverse change in our operations and the value of our ADSs, significantly limit or completely hinder our ability to continue to offer securities to investors, or cause the value of such securities to significantly decline. For a detailed description of risks relating to doing business in China, see “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing Business in China.”
3. In future filings, please refrain from using terms such as “we” or “our” when describing activities or functions of a VIE. We note that currently your definition of “we” and “our” includes the operations of the VIE. In addition, we note your definition of “China” does not include Hong Kong. Please revise the definition to clarify that the legal and operational risks associated with operating in China also apply to any operations in Hong Kong. We also note you have a Hong Kong subsidiary, Vipshop Hong Kong; please discuss in future filings, the applicable laws and regulations in Hong Kong as well as the related risks and consequences. Examples of applicable laws and regulations include, but are not limited to:
• Enforceability of civil liabilities in Hong Kong;
• Regulatory actions related to data security or anti-monopoly concerns in Hong Kong and their potential impact on your ability to conduct business, accept foreign investment or list on a U.S./foreign exchange; and
• Risk factor disclosure explaining whether there are laws/regulations in Hong Kong that result in oversight over data security, how this oversight impacts the company’s business, and to what extent the company believes that it is compliant with the regulations or policies that have been issued.
In response to the Staff’s comment on usage of terms, the Company undertakes to refrain from using terms such as “we” or “our” when describing activities or functions of a VIE, and to make necessary revisions in future filings of its annual report on Form 20-F.
Division of Corporation Finance
Office of Trade & Services
Securities and Exchange Commission
September 13, 2023
Page
In response to the Staff’s comment on legal and operational risks associated with operating in mainland China and whether those risks also apply to any operations in Hong Kong, the Company respectfully advises the Staff that Vipshop International Holdings Limited, the Company’s subsidiary in Hong Kong, is currently an investment holding company and is expected to be limited to operating as an investment holding company in the future without any substantive or data-related operations in Hong Kong. In light of this, the Company believes that the legal and operational risks associated with operating in mainland China do not apply to the Company’s presence in Hong Kong, and that the laws and regulations in Hong Kong, including regulatory actions related to data security or anti-monopoly concerns in Hong Kong and regulations in Hong Kong that may result in oversight over data security, do not have a material impact on its ability to conduct business, accept foreign investment, or continue to list on a United States stock exchange. To the extent that the Company has material operations in Hong Kong in the future, the Company will provide additional disclosures regarding the applicable laws and regulations in Hong Kong as well as the related risks and consequences, as appropriate.
4. In future filings, provide a summary a diagram of the company’s corporate structure that includes all three of the VIEs you use, as your disclosure currently suggests you have contractual relationships with three, (i) Vipshop E-Commerce, (ii) Vipshop Information, and (iii) Pin Jun Tong. In addition, describe all contracts and arrangements through which you claim to have economic rights and exercise control that results in consolidation of the VIE’s operations and financial results into your financial statements. We note that you have a detailed list starting on page 109, please provide a summary of this disclosure in Item 3. Disclose the uncertainties regarding the status of the rights of the Cayman Islands holding company with respect to its contractual arrangements with the VIE, its founders and owners, and the challenges the company may face enforcing these contractual agreements due to legal uncertainties and jurisdictional limits.
In response to the Staff’s comment on the organizational structure diagram, the Company undertakes to revise its organizational structure diagram disclosed on pages 5 and 108 of the 2022 Form 20-F under “Item 3. Key Information—Our Holding Company Structure and Contractual Arrangements with the Consolidated Variable Interest Entities” and “Item 4. Information of the Company—C. Organizational Structure” substantially in the form of the diagram set forth in Appendix A attached hereto in its future Form 20-F filings, subject to updates and adjustments to be made in connection with any material development of the subject matter being disclosed.
In response to the Staff’s comment on contractual arrangements, the Company respectfully proposes to revise the referenced disclosure as shown below in its future Form 20-F filings (with deletions shown as strike-through and additions underlined), subject to updates and adjustments to be made in connection with any material development of the subject matter being disclosed. Page reference is made to the 2022 Form 20-F to illustrate the approximate location of the disclosure.
Division of Corporation Finance
Office of Trade & Services
Securities and Exchange Commission
September 13, 2023
Page
Page 5:
A series of contractual agreements, including equity interest pledge agreements, exclusive option agreements, powers of attorney, exclusive business cooperation agreements, and loan agreements, have been entered into by and among our PRC subsidiaries, the consolidated variable interest entities, and their respective shareholders. Terms contained in each set of contractual arrangements with the consolidated variable interest entities and their respective shareholders are substantially similar. Under the equity interest pledge agreements, the shareholders of the applicable VIE have pledged all of their equity interests in the applicable VIE to the applicable WFOE to guarantee the applicable VIE’s and its shareholders’ performance of the relevant obligations under the exclusive business cooperation agreement, exclusive option agreement, and loan agreement. Under the exclusive option agreements, the shareholders of the applicable VIE have granted the applicable WFOE an exclusive option to purchase, or designate one or more person(s) to purchase, all or part of their respective equity interests in the applicable VIE at a purchase price equal to the higher of: (i) the amount of registered capital actually contributed by the shareholders or RMB10; or (ii) a minimum price permitted by applicable PRC laws. Under the powers of attorney, each shareholder of the VIE has irrevocably appointed the applicable WFOE as his attorney-in-fact to act on his behalf and exercise all of his rights as a shareholder of the applicable VIE, including the right to attend shareholder meetings, to exercise voting rights, to appoint directors and senior management of the applicable VIE, and to effect transfers of all or part of his equity interests in the applicable VIE pursuant to the equity interest pledge agreements and the exclusive option agreements. Under the exclusive business cooperation agreement, the applicable VIE agrees to engage the applicable WFOE as its exclusive provider of technical, consulting, and other services in relation to its business operations. In consideration of such services, the applicable VIE will pay to the applicable WFOE service fees that amount to all of the applicable VIE’s net income. Under the loan agreements, the applicable WFOE provided loans to the shareholders of the applicable VIE solely for the purpose of contribution or increase of registered capital or working capital of the applicable VIE. For more details of these contractual arrangements, see “Item 4. Information on the Company—C. Organizational Structure—Contractual Arrangements Relating to the Consolidated Variable Interest Entities.” As a result of these contractual arrangements, we have a “controlling financial interest” in the VIEs as defined in FASB ASC 810 so that we are considered the primary beneficiary of the consolidated variable interest entities for accounting purposes and have consolidated the financial results of these companies in our consolidated financial statements under the U.S. GAAP for accounting purposes. Neither Vipshop Holdings Limited nor its investors in the ADSs has an equity ownership in, direct foreign investment in, or control through such ownership or investment of, the consolidated variable interest entities and their subsidiaries, and the contractual arrangements are not equivalent to an equity ownership in the business of the consolidated
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CORRESP 1 filename1.htm CORRESP Vipshop Holdings Limited 128 Dingxin Road Haizhu District, Guangzhou 510220 People’s Republic of China September 13, 2023 VIA EDGAR Ms. Aamira Chaudhry Ms. Theresa Brillant Mr. Austin Pattan Ms. Jennifer Thompson Mr. Nicholas Nalbantian Ms. Taylor Beech Division of Corporation Finance Office of Trade & Services Securities and Exchange Commission 100 F Street, N.E. Washington, D.C. 20549 RE: Vipshop Holdings Limited (the “Company”) Form 20-F for Fiscal Year Ended December 31, 2022 Filed April 19, 2023 File No. 001-35454 Dear Ms. Chaudhry, Ms. Brillant, Mr. Pattan, Ms. Thompson, Mr. Nalbantian, and Ms. Beech: This letter sets forth the Company’s responses to the comments contained in the letter dated August 15, 2023 from the staff (the “Staff”) of the Securities and Exchange Commission (the “Commission”) regarding the Company’s annual report on Form 20-F for the fiscal year ended December 31, 2022 filed with the Commission on April 19, 2023 (the “2022 Form 20-F”). The Staff’s comments are repeated below in bold and followed by the Company’s responses thereto. All capitalized terms used but not defined in this letter shall have the meaning ascribed to such terms in the 2022 Form 20-F. Form 20-F for Fiscal Year Ended December 31, 2022 Item 3. Key Information, page 4 1. In future filings, please disclose prominently in this section that you are not a Chinese operating company but a Cayman Islands holding company with operations conducted by your subsidiaries and through contractual arrangements with a variable interest entity (VIE) based in China and that this structure involves unique risks to investors. If true, disclose that these contracts have not been tested in court. In response to the Staff’s comment, the Company respectfully proposes to revise the referenced disclosure as shown below in its future Form 20-F filings (with deletions shown as strike-through and additions underlined), subject to updates and adjustments to be made in connection with any material development of the subject matter being disclosed. Page reference is made to the 2022 Form 20-F to illustrate the approximate location of the disclosure. Division of Corporation Finance Office of Trade & Services Securities and Exchange Commission September 13, 2023 Page 2 Page 4: Our Holding Company Structure and Contractual Arrangements with the Consolidated Variable Interest Entities Vipshop Holdings Limited is not an a Chinese operating company but a Cayman Islands holding company with no equity ownership in its the consolidated variable interest entities and their subsidiaries. We conduct our operations in China through (i) our PRC subsidiaries and (ii) the consolidated variable interest entities with which we, but maintains contractual arrangements with the consolidated variable interest entities and is considered the primary beneficiary of these entities, whose financial results are consolidated in Vipshop Holdings Limited’s consolidated financial statements under the U.S. GAAP for accounting purposes. The contractual arrangements may not be as effective as direct equity ownership in the consolidated variable interest entities and their subsidiaries, and the relevant government authorities may challenge the enforceability of these contractual arrangements. We conduct our operations in China through (i) our PRC subsidiaries, and (ii) the consolidated variable interest entities and their subsidiaries. PRC laws and regulations restrict and impose conditions on foreign investment in internet content, value-added telecommunication-based online marketing and mobile application distribution businesses, and internet-based audio and video services. Accordingly, we operate these businesses in China through the consolidated variable interest entities and their subsidiaries, and such structure is used to provide investors with exposure to foreign investment in China-based companies where PRC laws and regulations prohibit or restrict direct foreign investment in certain operating companies, and rely on contractual arrangements among our PRC subsidiaries, the consolidated variable interest entities and their nominee shareholders to direct the business operations of the consolidated variable interest entities and their subsidiaries. Revenues contributed by the consolidated variable interest entities accounted for 2.3%, 2.6%, and 1.1%, and % of our total net revenues in 2020, 2021, and 2022, and 2023, respectively. However, contractual arrangements may not be as effective as direct ownership in providing us with control over the consolidated variable interests and their subsidiaries and we may incur substantial costs to enforce the terms of the arrangements. As such, the VIE structure involves unique risks to investors of our Cayman Islands holding company. For a more detailed discussion of those risks, see “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Corporate Structure.” In addition, the legality and enforceability of the contractual agreements by and among our PRC subsidiaries, the VIEs, and their respective shareholders, as a whole, have not been tested in a court of law in China as of the date of this annual report. 2. In future filings, please disclose that a majority of your operations are located in China, if true, as opposed to that they are “primarily” in China. In addition, in future filings please disclose the location of your auditor’s headquarters. In response to the Staff’s comment, the Company respectfully proposes to revise the referenced disclosure as shown below in its future Form 20-F filings (with deletions shown as strike-through and additions underlined), subject to updates and adjustments to be made in connection with any material development of the subject matter being disclosed. Page reference is made to the 2022 Form 20-F to illustrate the approximate location of the disclosure. Division of Corporation Finance Office of Trade & Services Securities and Exchange Commission September 13, 2023 Page 3 Page 6: Our China Operations We face various risks and uncertainties relating to doing business in China. A majority of ourOur business operations are primarily conducted in China, and we are subject to complex and evolving PRC laws and regulations. For example, we face risks associated with regulatory approvals on overseas offerings, anti-monopoly regulatory actions, and oversight on cybersecurity, data security and data privacy, as well as the prospective uncertainties as to the ability of the Public Company Accounting Oversight Board, or the PCAOB, to inspect or investigate completely auditors located in China, such as our auditor headquartered in Hong Kong, which may impact our ability to conduct certain businesses, accept foreign investments, or list and conduct offerings on a United States or other foreign exchange. These risks could result in a material adverse change in our operations and the value of our ADSs, significantly limit or completely hinder our ability to continue to offer securities to investors, or cause the value of such securities to significantly decline. For a detailed description of risks relating to doing business in China, see “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing Business in China.” 3. In future filings, please refrain from using terms such as “we” or “our” when describing activities or functions of a VIE. We note that currently your definition of “we” and “our” includes the operations of the VIE. In addition, we note your definition of “China” does not include Hong Kong. Please revise the definition to clarify that the legal and operational risks associated with operating in China also apply to any operations in Hong Kong. We also note you have a Hong Kong subsidiary, Vipshop Hong Kong; please discuss in future filings, the applicable laws and regulations in Hong Kong as well as the related risks and consequences. Examples of applicable laws and regulations include, but are not limited to: • Enforceability of civil liabilities in Hong Kong; • Regulatory actions related to data security or anti-monopoly concerns in Hong Kong and their potential impact on your ability to conduct business, accept foreign investment or list on a U.S./foreign exchange; and • Risk factor disclosure explaining whether there are laws/regulations in Hong Kong that result in oversight over data security, how this oversight impacts the company’s business, and to what extent the company believes that it is compliant with the regulations or policies that have been issued. In response to the Staff’s comment on usage of terms, the Company undertakes to refrain from using terms such as “we” or “our” when describing activities or functions of a VIE, and to make necessary revisions in future filings of its annual report on Form 20-F. Division of Corporation Finance Office of Trade & Services Securities and Exchange Commission September 13, 2023 Page 4 In response to the Staff’s comment on legal and operational risks associated with operating in mainland China and whether those risks also apply to any operations in Hong Kong, the Company respectfully advises the Staff that Vipshop International Holdings Limited, the Company’s subsidiary in Hong Kong, is currently an investment holding company and is expected to be limited to operating as an investment holding company in the future without any substantive or data-related operations in Hong Kong. In light of this, the Company believes that the legal and operational risks associated with operating in mainland China do not apply to the Company’s presence in Hong Kong, and that the laws and regulations in Hong Kong, including regulatory actions related to data security or anti-monopoly concerns in Hong Kong and regulations in Hong Kong that may result in oversight over data security, do not have a material impact on its ability to conduct business, accept foreign investment, or continue to list on a United States stock exchange. To the extent that the Company has material operations in Hong Kong in the future, the Company will provide additional disclosures regarding the applicable laws and regulations in Hong Kong as well as the related risks and consequences, as appropriate. 4. In future filings, provide a summary a diagram of the company’s corporate structure that includes all three of the VIEs you use, as your disclosure currently suggests you have contractual relationships with three, (i) Vipshop E-Commerce, (ii) Vipshop Information, and (iii) Pin Jun Tong. In addition, describe all contracts and arrangements through which you claim to have economic rights and exercise control that results in consolidation of the VIE’s operations and financial results into your financial statements. We note that you have a detailed list starting on page 109, please provide a summary of this disclosure in Item 3. Disclose the uncertainties regarding the status of the rights of the Cayman Islands holding company with respect to its contractual arrangements with the VIE, its founders and owners, and the challenges the company may face enforcing these contractual agreements due to legal uncertainties and jurisdictional limits. In response to the Staff’s comment on the organizational structure diagram, the Company undertakes to revise its organizational structure diagram disclosed on pages 5 and 108 of the 2022 Form 20-F under “Item 3. Key Information—Our Holding Company Structure and Contractual Arrangements with the Consolidated Variable Interest Entities” and “Item 4. Information of the Company—C. Organizational Structure” substantially in the form of the diagram set forth in Appendix A attached hereto in its future Form 20-F filings, subject to updates and adjustments to be made in connection with any material development of the subject matter being disclosed. In response to the Staff’s comment on contractual arrangements, the Company respectfully proposes to revise the referenced disclosure as shown below in its future Form 20-F filings (with deletions shown as strike-through and additions underlined), subject to updates and adjustments to be made in connection with any material development of the subject matter being disclosed. Page reference is made to the 2022 Form 20-F to illustrate the approximate location of the disclosure. Division of Corporation Finance Office of Trade & Services Securities and Exchange Commission September 13, 2023 Page 5 Page 5: A series of contractual agreements, including equity interest pledge agreements, exclusive option agreements, powers of attorney, exclusive business cooperation agreements, and loan agreements, have been entered into by and among our PRC subsidiaries, the consolidated variable interest entities, and their respective shareholders. Terms contained in each set of contractual arrangements with the consolidated variable interest entities and their respective shareholders are substantially similar. Under the equity interest pledge agreements, the shareholders of the applicable VIE have pledged all of their equity interests in the applicable VIE to the applicable WFOE to guarantee the applicable VIE’s and its shareholders’ performance of the relevant obligations under the exclusive business cooperation agreement, exclusive option agreement, and loan agreement. Under the exclusive option agreements, the shareholders of the applicable VIE have granted the applicable WFOE an exclusive option to purchase, or designate one or more person(s) to purchase, all or part of their respective equity interests in the applicable VIE at a purchase price equal to the higher of: (i) the amount of registered capital actually contributed by the shareholders or RMB10; or (ii) a minimum price permitted by applicable PRC laws. Under the powers of attorney, each shareholder of the VIE has irrevocably appointed the applicable WFOE as his attorney-in-fact to act on his behalf and exercise all of his rights as a shareholder of the applicable VIE, including the right to attend shareholder meetings, to exercise voting rights, to appoint directors and senior management of the applicable VIE, and to effect transfers of all or part of his equity interests in the applicable VIE pursuant to the equity interest pledge agreements and the exclusive option agreements. Under the exclusive business cooperation agreement, the applicable VIE agrees to engage the applicable WFOE as its exclusive provider of technical, consulting, and other services in relation to its business operations. In consideration of such services, the applicable VIE will pay to the applicable WFOE service fees that amount to all of the applicable VIE’s net income. Under the loan agreements, the applicable WFOE provided loans to the shareholders of the applicable VIE solely for the purpose of contribution or increase of registered capital or working capital of the applicable VIE. For more details of these contractual arrangements, see “Item 4. Information on the Company—C. Organizational Structure—Contractual Arrangements Relating to the Consolidated Variable Interest Entities.” As a result of these contractual arrangements, we have a “controlling financial interest” in the VIEs as defined in FASB ASC 810 so that we are considered the primary beneficiary of the consolidated variable interest entities for accounting purposes and have consolidated the financial results of these companies in our consolidated financial statements under the U.S. GAAP for accounting purposes. Neither Vipshop Holdings Limited nor its investors in the ADSs has an equity ownership in, direct foreign investment in, or control through such ownership or investment of, the consolidated variable interest entities and their subsidiaries, and the contractual arrangements are not equivalent to an equity ownership in the business of the consolidated