China related International          M&As          Li Zhang
I. Roadmap
2011 Foreign Investment Catalogue The Foreign Investment Catalogue lists industries that  are encouraged, restricted or p...
II. Approval and Registration
 Approval: Ministry of Commerce or its local branches     Transaction agreement     Amended Articles of Association    ...
III. Due Diligence
Legal Due Diligence   Legal establishment of the target company, including approvals of    any increases in registered ca...
   Chain of title of intellectual property rights;   HR Matters;   Approvals and Permits in connection with Environment...
IV. Some Practical Points
 Share/Asset transfer effective only upon approval NOT   signing. Governing law for transfer agreement should be PRC   l...
Disposal of state-owned assets is subject to    complicated approval procedures.   Mandatory valuation by licensed apprai...
V. Structuring the Deal
Share Deal Buyer will take over all business, assets, liabilities of    the target. Careful due diligence is a must. Sh...
Buying the Assets An onshore vehicle is required to own and operate   asset in China. Complication in transfer all   bus...
VI. Tips to Lower Risk
   Due Diligence   Closing Conditions   Payment   Reps & Warranties / Covenants   Unilateral termination   Arbitration
Li ZhangSenior Counsel, Yingke Law FirmEmail : zhangli@yingkelawyer.com Website: www.yingkelawyer.com
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M&A in China

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M&A in China

  1. 1. China related International M&As Li Zhang
  2. 2. I. Roadmap
  3. 3. 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.
  4. 4. II. Approval and Registration
  5. 5.  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.
  6. 6. III. Due Diligence
  7. 7. 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;
  8. 8.  Chain of title of intellectual property rights; HR Matters; Approvals and Permits in connection with Environmental Matters.
  9. 9. IV. Some Practical Points
  10. 10.  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
  11. 11. Disposal of state-owned assets is subject to complicated approval procedures. Mandatory valuation by licensed appraiser firms  Appraisal 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
  12. 12. V. Structuring the Deal
  13. 13. 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
  14. 14. 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.
  15. 15. VI. Tips to Lower Risk
  16. 16.  Due Diligence Closing Conditions Payment Reps & Warranties / Covenants Unilateral termination Arbitration
  17. 17. Li ZhangSenior Counsel, Yingke Law FirmEmail : zhangli@yingkelawyer.com Website: www.yingkelawyer.com
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