Regulator approves M&A lending
December 18, 2008 | BY
clpstaff &clp articles“Groundbreaking” rules give domestic commercial banks important role
The banking regulator has issued new rules which allow lending for M&A transactions, opening the door to leveraged buyouts in the PRC.
The Guidelines on Risk Management of Acquisition Loans of Commercial Banks were issued by the China Banking Regulatory Commission (CBRC) on December 6. They allow “strong” commercial banks to loan money to companies (or their subsidiaries) for the purpose of paying M&A transaction fees.
“This is a groundbreaking rule and should be listed as one of the most important rules issued by CBRC to date,” says Zhang Xin, partner of Global Law Office. “It opens the door to a new banking area and will have a tremendous impetus to the structuring and execution of M&A deals.”
The rules provide clear guidance and restrictions on exposures, leverage ratio and tenor of acquisition loans. They do not include any licensing requirement on bank establishments, a sign that the government wants more banks to enter the market. China's big-four state-owned banks will be qualified to lend for M&A deals; China Merchants Bank, Citic Bank and Industrial Bank Co will also meet the criteria.
In the long run, Zhang says, Chinese commercial banks will play a more significant role in the market, increasing their competition with foreign investment banks. Other observers have predicted the rules will allow state-owned enterprises to pursue more local and cross-border consolidation, and help Chinese companies to expand internationally.
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