m&a in china
DESCRIPTION
TRANSCRIPT
China related International M&As
Li Zhang
I. Roadmap
2011 Foreign Investment Catalogue The Foreign Investment Catalogue lists industries that
are encouraged, restricted or prohibited for foreign investors and is updated by NDRC and MOFCOM from time to time to reflect government policy.
The 2011 Catalogue has been effective as of 30 January 2012.
Wholly foreign owned subsidiaries are not allowed in certain industries.
Foreign Investors are not allowed to be majority shareholders in certain industries.
Foreign Investors are not allowed to invest in certain industries.
II. Approval and Registration
Approval: Ministry of Commerce or its local branches Transaction agreement
Amended Articles of Association
Valuation Report
The Certificate of Incorporation of Buyer
The Appointment Letter of New Directors
The Reference Letter issued by the Buyer’s bank
Completed Forms
Application Letter
Registration: The Bureau of Industry and Commerce
Post -Transfer Registration: Tax, Foreign exchange, etc.
III. Due Diligence
Legal Due Diligence
Legal establishment of the target company, including approvals of any increases in registered capital, transfers of shares/equity interest, etc.;
Capital verification of all contributions to registered capital;
Legal rights in respect of land / buildings;
Key Clauses in Supply agreements and Sale Agreements;
Existence of any cooperation (technical or otherwise) and/or other agreements/arrangements that would prevent or hinder proposed transfers/investment;
Chain of title of intellectual property rights;
HR Matters;
Approvals and Permits in connection with Environmental Matters.
IV. Some Practical Points
Share/Asset transfer effective only upon approval NOT
signing.
Governing law for transfer agreement should be PRC
law.
Price must be based on appraisal by independent
valuator.
Payment terms shall comply with mandatory terms: Full price should be paid within 3 months
Subject to approval, 60% within 6 months Remainder within 1 year
Disposal of state-owned assets is subject to complicated approval procedures.
Mandatory valuation by licensed appraiser firmsAppraisal results must be confirmed by SASAC
Transaction price cannot be lower than 90% of the appraisal results.
Target must be listed in Asset Exchange Center Substantial delay in the schedule
Risk that a potential bidder may crash the party
Standard contracts of the Exchange Center must be used
V. Structuring the Deal
Share Deal Buyer will take over all business, assets, liabilities of
the target.
Careful due diligence is a must.
Share deal may be achieved through:Share purchase from current shareholders
Subscribe to an increase in equity of the target
Buying the Assets An onshore vehicle is required to own and operate
asset in China.
Complication in transfer all business, customers, contracts, assets and employees.
Encumbrance will need to be discharged before the transfer.
Recommended if:The target has high level of exposure / noncompliance
Only part of the business is desired.
VI. Tips to Lower Risk
Due Diligence
Closing Conditions
Payment
Reps & Warranties / Covenants
Unilateral termination
Arbitration
