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 行业新闻：New MOFCOM M&A Regulations 即将出台（转贴） |
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安普若
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加入时间: 2004/02/21
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作者：安普若 在 海归商务 发贴, 来自【海归网】 http://www.haiguinet.com
New MOFCOM M&A Regulations 即将出台
Dear Clients, Friends & Colleagues,
In recent weeks, many of us learned about the draft MOFCOM M&A Regulations ("Revised M&A Provisions") that may impose new restrictions on PRC cross-border transactions including venture capital and private equity transactions. Attached hereto is our analysis in connection with the Revised M&A Provisions. We are of the view that this proposed Revised M&A Provisions, if promulgated as is, will have a significant impact on venture capital and private equity transactions in China going forward.
Our analysis is based on released preliminary drafts and it is our intent to highlight potential issues for these cross-border transactions. Until the Revised M&A Provisions are promulgated and become effective, however, the full effects and consequences cannot be accurately predicted. This analysis does not constitute legal advice and should not be relied on as such.
PROPOSED REVISIONS TO 2003 M&A REGULATIONS
NEW REGULATIONS IMPACTING M&A,
PRIVATE EQUITY AND VENTURE CAPITAL TRANSACTIONS IN CHINA
The Ministry of Foreign Commerce of the People's Republic of China ("MOFCOM"), along with several other PRC government agencies, are preparing to issue new regulations concerning M&A transactions in China. The new regulations, called the "Provisions on the Mergers and Acquisitions of Domestic Enterprises by Foreign Investors" (the "Revised M&A Provisions"), are expected to become effective by the end of August, but may have retroactive application. The Revised M&A Provisions will replace the existing regulatory framework governing foreign acquisitions of Chinese companies, namely the "Interim Provisions on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors" (the "Interim M&A Provisions"), issued in 2003. Until MOFCOM releases a final draft of the Revised M&A Provisions, the full impact of the rules remains to be seen. This memorandum provides a brief overview of the likely implications of the rules, based on preliminary drafts we have reviewed.
New Rules on Share Exchanges and SPVs
The proposed Revised M&A Provisions will include the long-anticipated "share exchange" rules, which are designed to allow for the exchange of shares of domestic Chinese companies for shares of offshore companies. For a “share exchange” to be available in an "equity or asset acquisition" under the Revised M&A Provisions, certain conditions must be satisfied, including:
* the shares of the off-shore acquirer must be tradable on a recognized overseas securities exchange;
* the transaction price of the offshore company shares must be "stable" during the one year period preceding the transaction;
* the shareholders of the PRC domestic company (and, if applicable, the shareholders of the offshore company) must be the legal owners of the shares and the shares must be legally transferable in accordance with applicable law; and
the shares of both the offshore company and the onshore company must be unencumbered and free from dispute regarding their true ownership.
In addition to allowing share exchanges under the foregoing circumstances, the Revised M&A Provisions also provide a mechanism for share exchanges with offshore special purpose vehicles ("SPVs") where the SPV will become listed on an offshore stock exchange within one year.
The current draft of the Revised M&A Provisions contains certain ambiguities and it is not clear whether a share exchange will be available in the context of offshore restructurings not involving a stock exchange listing. To the extent the Revised M&A Provisions do not allow share exchanges in that context, they will represent a disappointment to foreign venture finance and private equity investors. Such investors often restructure their onshore portfolio companies using offshore holding companies, which can be a cumbersome process under existing regulations that do not contemplate share exchanges.
Extensive Approval Requirements
The Revised M&A Provisions, like the Interim M&A Provisions, require regulatory approval for cross-border M&A activities by foreign investors, including the acquisition by foreign investors of the equity or assets of a domestic Chinese company.
However, the Revised M&A Provisions also create new layers of regulatory approvals affecting offshore SPVs that may impact the ability of foreign investors and their Chinese counterparts to structure in-bound venture and private equity investments. As a result, MOFCOM approval may be required for the vast majority of cross-border financings and M&A transactions, including private equity and venture financings.
If a prospective transaction involving cash or equity consideration (or both) qualifies as an equity acquisition or an asset acquisition under the Revised M&A Provisions, the parties must obtain the approval of MOFCOM prior to consummating any of the following:
* establishing an offshore holding company (if established by a domestic Chinese company or Chinese natural persons);
* the acquisition of any shares of the offshore entity by the shareholders of a domestic Chinese company by way of a share exchange; or
* establishing an offshore SPV directly or indirectly controlled by a domestic Chinese company or Chinese natural person for the purpose of an overseas listing.
In other words, if an offshore entity is established by a Chinese party in connection with an acquisition transaction, and the shareholders of a domestic Chinese company receive shares in the offshore entity as part of such transaction, then MOFCOM approval will be required for both the formation of the offshore entity and the issuance of its shares to the Chinese parties.
The Revised M&A Provisions set out detailed approval requirements for acquisitions and for share exchanges. Once the application documents have been submitted, MOFCOM will review the application and render a decision within 30 days. If approved, MOFCOM will issue a "Certificate of Approval" for the transaction that is effective for a period of up to eight months. The Revised M&A Provisions also require applicants using an offshore SPV to file an overseas investment registration form with the local department of SAFE.
How Will the Revised M&A Provisions Impact Venture and Private Equity Financings?
The preferred structure for foreign venture investments in China typically includes a "round trip" investment whereby Chinese shareholders in a target domestic Chinese company receive equity in an offshore holding company co-invested in by the foreign investors. While the “round trip” structure is subject to registration with SAFE, MOFCOM approval is not required under the current regulatory scheme.
If adopted in their current form, the Revised M&A Provisions will require MOFCOM approval if a venture or private equity financing involves the establishment of an SPV by the domestic Chinese company for listing purposes. More troubling still, the SPV is required to complete its listing on an overseas exchange within one year of its establishment; otherwise the approval will be revoked and the prior shareholding structure restored.
Unfortunately, no guidance is provided in the text of the Revised M&A Provisions with respect to the establishment of an SPV if there is no intent by the parties to list within the one year time frame, as is the case with most simple holding company reorganization in China that involve an SPV. However, we understand that MOFCOM intends to require approval in connection with the establishment of an SPV, regardless of the intent to list. Given that very few, if any, venture financings below the mezzanine level contemplate a listing within that time frame, these requirements could effectively prevent typical, direct early stage venture financing transactions from going forward as currently structured.
For venture financing structures in which the offshore entity does not directly invest in the domestic Chinese company, but instead forms a WFOE which then enters into a series of captive company contracts with the domestic Chinese company (also known as "Sina contracts"), the analysis under the Revised M&A Provisions is even less straight forward. The Revised M&A Provisions do not directly address a transaction where there is no "direct" acquisition of the shares or assets of a domestic Chinese company. However, we understand that MOFCOM intends to view this kind of structure as an acquisition for purposes of the Revised M&A Provisions and thus will require that approval be obtained prior to establishing the SPV.
Lasting Effect of New Regulations Remains Unknown
The final content of the Revised M&A Provisions that are expected to be promulgated this summer remains unknown, as are the effects of those provisions on cross-border mergers and acquisitions, and in particular venture capital and private equity financing deals.
The foregoing analysis is based on our review of a preliminary draft of the Revised M&A Provisions. This analysis does not constitute legal advice and should not be relied on as such.
FOOTNOTES:
1) Together with the State Administration of Industry and Commerce ("SAIC"), State Administration of Taxation ("SAT") and State Administration of Foreign Exchange ("SAFE") (also joined by China Securities Regulatory Commission ("CSRC") and State-owned Asset Supervision and Administration Commission ("SASAC")).
2) "M&A transactions" in the context of the Revised M&A Provisions refers to equity and asset acquisitions, not true "mergers" in the U.S. legal sense.
3) SAFE promulgated Circular Notice No. 75 (Notice of the State Administration of Foreign Exchange on Relevant Issues Concerning Foreign Exchange Administration for Domestic Residents to Engage in Financing and in Return Investments via Overseas Special Purpose Companies) ("Circular 75") on November 1, 2005. Circular 75 establishes a registration requirement for PRC residents who make "round-trip investments," that is, investments in offshore holding.
作者：安普若 在 海归商务 发贴, 来自【海归网】 http://www.haiguinet.com
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 行业新闻：New MOFCOM M&A Regulations 即将出台（转贴） -- 安普若 - (10562 Byte) 2006-8-01 周二, 23:53 (1682 reads)
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