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M&A in China

M&A in China






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    M&A in China M&A in China Presentation 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 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
    • 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
    • Li ZhangSenior Counsel, Yingke Law FirmEmail : zhangli@yingkelawyer.com Website: www.yingkelawyer.com