PRC companies' acquisition of shares in Singapore-listed companies

Preparation for Transaction and Information Report

According to the Joint Notice, a PRC company must promptly report its intention to make an overseas acquisition to Mofcom and Safe, or their local provincial authorities.

The Interim Measures stipulate that for projects involving overseas bidding or acquisition, the company must submit a written information report to NDRC before any tendering or formal commercial activity takes place and the parties must also apply for registration with or approval from NDRC before they execute any legally-binding documents. Contractual obligations should be made conditional on approvals of the relevant PRC government authorities. Parties should, therefore, factor the timing for approval into their transaction timetable.

Mandatory Offer and Acting in Concert

Under the Singapore Code on Take-overs and Mergers (Code), (i) if any person acquires shares which, taken together with shares held or acquired by persons acting in concert with him, carry 30% or more of the voting rights of a company; or (ii) a person who, with persons acting in concert with him, holds not less than 30% but not more than 50% of voting rights and during a period of six months acquires additional shares carrying more than 1% of the voting rights, such person must make an offer for all the shares of the company held by the other shareholders.

Persons acting in concert comprise individuals or companies who, pursuant to an agreement or understanding (whether formal or informal), co-operate, through the acquisition by any of them of shares in a company, to obtain or consolidate effective control of that company. Certain individuals and companies will be presumed to be persons acting in concert with each other under the Code, unless the contrary is established.

It is important for a PRC company not to trigger the obligation to make a mandatory takeover offer, if such is not its intention. In calculating shareholding percentages, a PRC company should be aware that the shareholdings of persons “acting in concert” with it must also be aggregated to its shareholdings. The PRC company should exercise due care and diligence in determining indirect shareholdings and deemed interests in shares. Where possible, confirmations should be procured from relevant shareholders.

Deposit and Remittance of Consideration

The PRC party must apply to NDRC or its local branches for verification and approval if prepayment (e.g. a performance deposit) is required. Furthermore, under Circular 120, the investor shall, instead of paying directly to the overseas institutions or individuals, deposit the performance deposit in its special overseas account. The investor must also apply to Safe's local pilot branches for opening such special overseas account, and for purchasing and remitting the foreign exchange. Under Circular 27, when approving the total investment funds to be remitted abroad for the project, the foreign exchange authorities will take into account any amounts remitted abroad during the initial period.

These have implications to ways in which an acquisition is structured: where a deposit will usually be set off against from the remittance of the consideration sum on completion. It is also worth noting that Circulars 27 and 120 must be strictly complied with. In the event that the performance deposit is not deposited into the special overseas account as approved by the pilot branches, the foreign exchange authorities may not approve an amount for remittance where the prepayment amount has been set off.

Endnotes

1 On January 7 2009, Mofcom circulated the Administrative Measures for Overseas Investment (境外投资管理办法规(征求意见稿)) for public consultation. The said measures which are aimed at promoting and regulating overseas investment, adjust the criteria and procedures of approvals. The Provisions on the Examination and Approval of Investment to Run Enterprises Abroad will be repealed upon implementation of the new Administrative Measures.