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Steven Wei SU [email_address] Structuring RMB-denominated Private Equity Funds in China and Recent Regulatory Development Hong Kong May 2011 Guo Lian PRC Lawyers 国联律师事务所
What is a RMB-denominated  Private Equity Fund? ,[object Object],[object Object],[object Object],Guo Lian PRC Lawyers 国联律师事务所
Increasing Interest in RMB Fund ,[object Object],[object Object],[object Object],[object Object],Guo Lian PRC Lawyers 国联律师事务所
Increasing Interest in RMB Fund (Cont) ,[object Object],[object Object],[object Object],Guo Lian PRC Lawyers 国联律师事务所
Increasing Interest in RMB Fund (Cont) Guo Lian PRC Lawyers 国联律师事务所 Source: Zero2IPO VC Fundraising in RMB and US$ for 2006 - 2010
Increasing Interest in RMB Fund (Cont) Guo Lian PRC Lawyers 国联律师事务所 Source: Zero2IPO PE Fundraising in RMB and US$ for 2006 - 2010
Increasing Interest in RMB Fund (Cont) Guo Lian PRC Lawyers 国联律师事务所 Source: Zero2IPO PE/VC Fundraising in RMB and US$ for 2006-2010
Increasing Interest in RMB Fund (Cont) Guo Lian PRC Lawyers 国联律师事务所 Source: Zero2IPO 2011Q1 PE/VC Fundraising Cases and Volumes  in RMB  and Foreign Currency
Increasing Interest in RMB Fund (Cont) Guo Lian PRC Lawyers 国联律师事务所 Source: Zero2IPO China: 2008Q1-2011Q1 PE/VC Fundraising Cases and Volumes
Increasing Interest in RMB Fund (Cont) Guo Lian PRC Lawyers 国联律师事务所 Source: Zero2IPO 2008Q1-2011Q1 Investment Cases and Volumes
Why RMB Fund? ,[object Object],[object Object],[object Object],[object Object],Guo Lian PRC Lawyers 国联律师事务所
Why RMB Fund? (Cont) ,[object Object],[object Object],[object Object],[object Object],Guo Lian PRC Lawyers 国联律师事务所
Why RMB Funds? (Cont) ,[object Object],[object Object],Guo Lian PRC Lawyers 国联律师事务所
Why RMB Funds? (Cont) ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Guo Lian PRC Lawyers 国联律师事务所
Who Have Established RMB Funds in 2010? ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Guo Lian PRC Lawyers 国联律师事务所
Evolving Regulatory Landscape ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Guo Lian PRC Lawyers 国联律师事务所
Evolving Regulatory Landscape (Cont) ,[object Object],[object Object],[object Object],[object Object],[object Object],Guo Lian PRC Lawyers 国联律师事务所
Evolving Regulatory Landscape (Cont) ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Guo Lian PRC Lawyers 国联律师事务所
Evolving Regulatory Landscape (Cont) ,[object Object],[object Object],[object Object],[object Object],[object Object],Guo Lian PRC Lawyers 国联律师事务所
Evolving Regulatory Landscape (Cont) ,[object Object],[object Object],Guo Lian PRC Lawyers 国联律师事务所
Options for RMB Fund - FIVCIE ,[object Object],[object Object],[object Object],[object Object],Guo Lian PRC Lawyers 国联律师事务所
Options for RMB Fund – FIVCIE (Cont) Guo Lian PRC Lawyers 国联律师事务所 Offshore Onshore  FIVCIE Management Co/Partnership PortCo A Investment in  ForEx Typical FIVCIE Structure  GP PortCo N SPVs LPs RMB Fund (CJV) PortCo B … ... Domestic LPs Offshore Fund Management Agreement Investment in RMB Investment in RMB Dividends in RMB Dividend in ForEx Fund Manager Investment in  ForEx Return + Carried interest in ForEx Return in RMB SPVs Investment in  ForEx Return in ForEx
Options for RMB Fund - FIVCIE (Cont) ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Guo Lian PRC Lawyers 国联律师事务所
Options for RMB Fund - FIVCIE (Cont) ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Guo Lian PRC Lawyers 国联律师事务所
Options for RMB Fund - FIVCIE (Cont) ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Guo Lian PRC Lawyers 国联律师事务所
Options for RMB Fund – FIVCIE (Cont) ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Guo Lian PRC Lawyers 国联律师事务所
Options for RMB Fund – FIVCIE (Cont) ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Guo Lian PRC Lawyers 国联律师事务所
Options for RMB Fund - FIVCIE (Cont) ,[object Object],[object Object],[object Object],Guo Lian PRC Lawyers 国联律师事务所
Options for RMB Fund - FIVCIE (Cont) ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Guo Lian PRC Lawyers 国联律师事务所
Options for RMB Funds – Equity Investment Fund ,[object Object],[object Object],[object Object],[object Object],[object Object],Guo Lian PRC Lawyers 国联律师事务所
Options for RMB Fund – Equity Investment Fund (Cont) ,[object Object],[object Object],[object Object],Guo Lian PRC Lawyers 国联律师事务所
Options for RMB Fund – Equity Investment Fund (Cont) Offshore Onshore GP LP s EIME Co/Partnership PortCo A Investment in ForEx Guo Lian PRC Lawyers 国联律师事务所 SPVs RMB Fund PortCo B PortCo N … ... Domestic LPs Management Agreement Investment in RMB Investment in RMB Investment in ForEx Dividends in RMB Return in ForEx + Carried interest SPVs EIF Structures Return in RMB Dividends in ForEx Investment in  ForEx Offshore Fund Services, Fee and Return
Options for RMB Fund – Equity Investment Fund (Cont) ,[object Object],[object Object],[object Object],Guo Lian PRC Lawyers 国联律师事务所
Options for RMB Fund – Equity Investment Fund (Cont) ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Guo Lian PRC Lawyers 国联律师事务所
Options for RMB Fund – Equity Investment Fund (Cont) ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Guo Lian PRC Lawyers 国联律师事务所
Options for RMB Fund – Equity Investment Fund (Cont) ,[object Object],[object Object],[object Object],[object Object],[object Object],Guo Lian PRC Lawyers 国联律师事务所
Options for RMB Fund – Equity Investment Fund (Cont) ,[object Object],Guo Lian PRC Lawyers 国联律师事务所
The Shanghai Pilot Program ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Guo Lian PRC Lawyers 国联律师事务所
The Shanghai Pilot Program (Cont) ,[object Object],Guo Lian PRC Lawyers 国联律师事务所
The   Shanghai Pilot Program (Cont) Guo Lian PRC Lawyers 国联律师事务所 Offshore Onshore GP LPs FIE EIME Co/partnership PortCo A PorCo B PortCo N … ... SPVs RMB Fund Domestic LPs Management  Agreement Investment in RMB Investment in RMB Dividends in RMB 5%  capital contribution in  RMB A Structure under the Shanghai Pilot  Program Return in  RMB Investment in  ForEx Dividens in ForEx Return on investment in ForEx Investment in  ForEx SPVs ??  ??
The Shanghai Pilot Program (Cont) Guo Lian PRC Lawyers 国联律师事务所 ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
The Shanghai Pilot Program (Cont) Guo Lian PRC Lawyers 国联律师事务所 ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
The Shanghai Pilot Program (Cont) Guo Lian PRC Lawyers 国联律师事务所 ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
The Shanghai Pilot Program (Cont) Guo Lian PRC Lawyers 国联律师事务所 △   Main foreign investor(s) must be either of (i) offshore sovereign-wealth funds; (ii) pension funds; (iii) endowment funds; (iv) charitable funds; (v) fund of funds; (vi) insurance companies; (vii) banks; (viii) securities companies; or (ix) other foreign institutional investors recognized by the Joint Conference. △   One of the notable clarifications under the Pilot Program is that a Pilot FIE EIME can make foreign exchange capital contributions as a GP to an RMB fund up to 5 per cent of the fund size and such a contribution will not affect the (domestic) nature of the relevant RMB fund. If the fund has foreign LPs, it may not benefit from this treatment.
The Shanghai Pilot Program (Cont) Guo Lian PRC Lawyers 国联律师事务所 ,[object Object],[object Object],[object Object],[object Object],[object Object]
Case Study – Blackstone Zhonghua Development Investment Fund Guo Lian PRC Lawyers 国联律师事务所 Blackstone Zhonghua Dev. Investment Fund PortCo B PortCo N PortCo A Blackstone Zhonghua Development Investment Fund GP Blackstone Zhonghua Development Investment Fund LPs HK Management Co HK Holding Co Management Co Blackstone onshore GP Domestic LPs Management Agreement Advisory Services
Filing with the NDRC ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Guo Lian PRC Lawyers 国联律师事务所
Filing with the NDRC (Cont) ,[object Object],[object Object],[object Object],Guo Lian PRC Lawyers 国联律师事务所
Exits ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Guo Lian PRC Lawyers 国联律师事务所
Exits (Cont) Guo Lian PRC Lawyers 国联律师事务所 RMB30 m RMB30 m Minimum pre-IPO capital Core business, board and management must be with no material change during the past 2 years. The controlling party must be unchanged for the past 2 years. Core business, board and management must be with no material change during the past 3 years. The controlling party must be unchanged for the past 3 years. Business continuity 36 months for controlling shareholder or de factor controlling party; 12 months for other restricted shareholders. Pre-IPO investors(6 m before CSRC submission) are subject to 12 months lock-up period and no more than 50% transfer within following  24 months. 36 months for controlling shareholders, de factor controlling party, promoters for a FIE issuer; 12 months for other restricted minority shareholders. Pre-IPO investors(12 m before prospectus publication) are subject to 36 months lock-up period.  Lock up period 25% or 10% if the capital is RMB400 m or above.  25% or 10% if the capital is RMB400 m or above. The controlling party must be unchanged for the past 3 years. Minimum public holding after IPO Over RMB 20 m in net assets and positive earnings. Intangible assets of the issuer constitute no more than 20% of its net assets in the most recent balance sheet and positive earnings. Assets before IPO ,[object Object],[object Object],[object Object],[object Object],[object Object],Minimum profitability of the issuer RMB30 m RMB50 m Minimum post-IPO capital 3 years, no material change with the main business and the management and no change with the control 3 years Minimum operating history ChinNext Shanghai/Shenzhen Stock Exchange
[object Object],[object Object],[object Object],[object Object],Guo Lian PRC Lawyers 国联律师事务所 Closing Remarks
[object Object],[object Object],[object Object],Guo Lian PRC Lawyers 国联律师事务所 Closing Remarks (Cont)
Thank you Steven Wei SU Email:  [email_address] Tel:  +86 13552639569 +86 1051660506-123 All rights reserved  Guo Lian PRC Lawyers 国联律师事务所

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Structuring RMB Fund in China

  • 1. Steven Wei SU [email_address] Structuring RMB-denominated Private Equity Funds in China and Recent Regulatory Development Hong Kong May 2011 Guo Lian PRC Lawyers 国联律师事务所
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  • 5. Increasing Interest in RMB Fund (Cont) Guo Lian PRC Lawyers 国联律师事务所 Source: Zero2IPO VC Fundraising in RMB and US$ for 2006 - 2010
  • 6. Increasing Interest in RMB Fund (Cont) Guo Lian PRC Lawyers 国联律师事务所 Source: Zero2IPO PE Fundraising in RMB and US$ for 2006 - 2010
  • 7. Increasing Interest in RMB Fund (Cont) Guo Lian PRC Lawyers 国联律师事务所 Source: Zero2IPO PE/VC Fundraising in RMB and US$ for 2006-2010
  • 8. Increasing Interest in RMB Fund (Cont) Guo Lian PRC Lawyers 国联律师事务所 Source: Zero2IPO 2011Q1 PE/VC Fundraising Cases and Volumes in RMB and Foreign Currency
  • 9. Increasing Interest in RMB Fund (Cont) Guo Lian PRC Lawyers 国联律师事务所 Source: Zero2IPO China: 2008Q1-2011Q1 PE/VC Fundraising Cases and Volumes
  • 10. Increasing Interest in RMB Fund (Cont) Guo Lian PRC Lawyers 国联律师事务所 Source: Zero2IPO 2008Q1-2011Q1 Investment Cases and Volumes
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  • 22. Options for RMB Fund – FIVCIE (Cont) Guo Lian PRC Lawyers 国联律师事务所 Offshore Onshore FIVCIE Management Co/Partnership PortCo A Investment in ForEx Typical FIVCIE Structure GP PortCo N SPVs LPs RMB Fund (CJV) PortCo B … ... Domestic LPs Offshore Fund Management Agreement Investment in RMB Investment in RMB Dividends in RMB Dividend in ForEx Fund Manager Investment in ForEx Return + Carried interest in ForEx Return in RMB SPVs Investment in ForEx Return in ForEx
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  • 32. Options for RMB Fund – Equity Investment Fund (Cont) Offshore Onshore GP LP s EIME Co/Partnership PortCo A Investment in ForEx Guo Lian PRC Lawyers 国联律师事务所 SPVs RMB Fund PortCo B PortCo N … ... Domestic LPs Management Agreement Investment in RMB Investment in RMB Investment in ForEx Dividends in RMB Return in ForEx + Carried interest SPVs EIF Structures Return in RMB Dividends in ForEx Investment in ForEx Offshore Fund Services, Fee and Return
  • 33.
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  • 40. The Shanghai Pilot Program (Cont) Guo Lian PRC Lawyers 国联律师事务所 Offshore Onshore GP LPs FIE EIME Co/partnership PortCo A PorCo B PortCo N … ... SPVs RMB Fund Domestic LPs Management Agreement Investment in RMB Investment in RMB Dividends in RMB 5% capital contribution in RMB A Structure under the Shanghai Pilot Program Return in RMB Investment in ForEx Dividens in ForEx Return on investment in ForEx Investment in ForEx SPVs ?? ??
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  • 44. The Shanghai Pilot Program (Cont) Guo Lian PRC Lawyers 国联律师事务所 △ Main foreign investor(s) must be either of (i) offshore sovereign-wealth funds; (ii) pension funds; (iii) endowment funds; (iv) charitable funds; (v) fund of funds; (vi) insurance companies; (vii) banks; (viii) securities companies; or (ix) other foreign institutional investors recognized by the Joint Conference. △ One of the notable clarifications under the Pilot Program is that a Pilot FIE EIME can make foreign exchange capital contributions as a GP to an RMB fund up to 5 per cent of the fund size and such a contribution will not affect the (domestic) nature of the relevant RMB fund. If the fund has foreign LPs, it may not benefit from this treatment.
  • 45.
  • 46. Case Study – Blackstone Zhonghua Development Investment Fund Guo Lian PRC Lawyers 国联律师事务所 Blackstone Zhonghua Dev. Investment Fund PortCo B PortCo N PortCo A Blackstone Zhonghua Development Investment Fund GP Blackstone Zhonghua Development Investment Fund LPs HK Management Co HK Holding Co Management Co Blackstone onshore GP Domestic LPs Management Agreement Advisory Services
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  • 53. Thank you Steven Wei SU Email: [email_address] Tel: +86 13552639569 +86 1051660506-123 All rights reserved Guo Lian PRC Lawyers 国联律师事务所

Editor's Notes

  1. iii