China M&A goes global

This article is from the M&A chapter of the 2015 Annual Review and is available for download here.


Hairong Li of Zhong Lun Law Firm explains the new regulations affecting inbound and outbound M&A, the industries most targeted by Chinese and foreign investors and the unique strategies of working with SOEs

1. What have been the key regulatory developments affecting M&A in the past 12 months?

During the past year, the overall trend in the authorities' oversight of M&A has been toward relaxation and simplification. In terms of overseas M&A, in 2014, the State Council issued the List of Investment Projects Subject to Government Check and Approval (2014), the National Development and Reform Commission (NDRC) promulgated the Measures for the Administration of the Check and Approval and Record Filing of Overseas Investment Projects and the revised version afterwards, and the Ministry of Commerce (MOFCOM) promulgated the Measures for the Administration of Overseas Investment. These provisions substantially shrink the scope of overseas investments subject to examination and approval and simplify the approval and record filing procedures for overseas investments. Furthermore, in 2015, the State Administration of Foreign Exchange also issued the Circular on Further Simplifying and Improving Exchange Control Policies Relating to Direct Investment, changing the system of approval of foreign exchange registration concerning direct overseas investment to one of indirect supervision of foreign exchange registration concerning direct investment through banks.

Furthermore, the biggest highlight of 2014 involving M&A of listed companies is that, according to the Measures for the Administration of Material Asset Restructurings by Listed Companies as amended by the China Securities Regulatory Commission (CSRC), when an acquisition effected by a domestically listed company by a means other than an offering of shares constitutes a material asset restructuring, the review of the CSRC is no longer required. This reform will have a profound impact on the M&A market.

2. What is your outlook for the year ahead? What legislation is likely to affect M&A? What changes are further required to ease transactions?

My greatest hope for the year ahead in the M&A market is the registration system reform in the capital markets, which will have a marked impact on M&A:

(1) once the registration system is employed, the pathway for enterprises to list domestically will be significantly widened; for private equity, venture capital and other such investment institutions, this implies a smoother withdrawal channel; accordingly, the registration system reform will further stimulate the appetite of equity investment institutions and cause the M&A market to flourish; and

(2) after the registration system, the approval required by listed companies wishing to offer shares to purchase assets will also be further relaxed. This will greatly reduce the time required for approvals of listed company M&A, reducing the time and cost of, and promoting the efficiency of, M&A.

Furthermore, the NDRC issued the Regulations for the Administration of Investment Projects Subject to Check and Approval or Record Filing by the Government (Draft for Comments) in June this year. Pursuant to the Draft, “with the exception of overseas investment projects involving sensitive countries and regions or sensitive industries that require check and approval in accordance with provisions, overseas investment projects shall be subject to the post-event record filing system”. There is little doubt that the issuance of these Regulations will have a substantial and positive impact on company M&A, particularly overseas M&A.

3. How have MOFCOM's Regulations on the Attachment of Restrictive Conditions to Business Operator Concentrations affected the merger control regime in China?

The anti-monopoly law enforcement authorities of foreign countries generally take a strict regulatory attitude toward company acquisitions that have or could have the effect of eliminating or restricting competition. In 2007, China promulgated the PRC Anti-monopoly Law, with Article 29 expressly providing that, “With respect to a concentration of business operators that they do not prohibit, the State Council's Anti-monopoly Law Enforcement Authorities may decide to attach restrictive conditions that reduce the concentration's detrimental effects on competition”. However, for a long time after that, there were no more detailed provisions on the attachment of restrictive conditions to business operator concentrations, resulting in suspicions of non-transparent law enforcement and discriminatory law enforcement by MOFCOM in the actual course of law enforcement.

In December last year, MOFCOM promulgated the Provisions on the Attachment of Restrictive Conditions to Concentrations of Business Operators, which will be conducive to making law enforcement transparent and benefit M&A in the long term.

4. Have any recent initiatives simplified administrative procedures for outbound investments?

The NDRC issued the Regulations for the Administration of Investment Projects Subject to Check and Approval or Record Filing by the Government (Draft for Comments) in June this year. According to the Draft, “with the exception of overseas investment projects involving sensitive countries and regions or sensitive industries that require check and approval in accordance with provisions, overseas investment projects shall be subject to the post-event record filing system”. The Regulations are expected to be formally issued this year, and will further delegate the authority for the approval of overseas investments by Chinese enterprises downwards. This reduces investors' burdens and makes their overseas investments swifter and more convenient.

5. Which sectors abroad have Chinese investors been most drawn to? What are some of the key deal trends you are witnessing?

Looking at the current distribution of the overseas investments made by Chinese enterprises, the majority are concentrated in industries such as mining, leasing and commercial services, finance, manufacturing, as well as information transmission, software and information technology services. I'm relatively bullish on the commercial services and the information transmission, software and information technology service industries in particular.

There are two clear trends in overseas investment transactions: (1) a gradual diversification in investment methods, with cross-border M&A becoming a major means of overseas direct investment; and (2) an increasing presence of local enterprises and non-state-owned enterprises, changing the previous dynamic where it was mainly enterprises under the central government and state-owned enterprises (SOEs) that were “going global”.

6. Which sectors have attracted the most foreign investment in China? Which industries have been most active in M&A?

According to the most recent report published by consulting firm A.T. Kearney, China has ranked second as a foreign direct investment (FDI) destination for three years running, with most of this FDI directed at industries such as services, logistics, e-commerce, transportation and finance. These are the industries which are more attractive to foreign investors.

7. What trends have you observed in terms of M&A in China's inner (central and western) regions?

M&A by foreign investors in Central and Western China is currently showing a gradual rising trend. This can mainly be attributed to the gradual saturation in growth in the eastern coastal regions of China as well as an increase in all sorts of costs and the serial issuance of relevant state policies for the large-scale development of Western China.

8. What is your advice to foreign clients engaging in deals with Chinese investors, both inbound and outbound?

Foreign clients need to understand the different types of Chinese investors. Generally speaking, when cooperating with a Chinese enterprise with a state-owned background, certain special state-owned asset approval procedures will usually be involved, which will slow down the progress of the transaction. Furthermore, different opinions will come from SOE management, requiring more mental preparation. Additionally, SOEs often have very deep pockets and influence over local policies – another advantage of cooperating with them. In contrast, private enterprises in China are often more proactive in their investment style and have greater decision-making efficiency.

Furthermore, the restrictions on M&A by foreign investors in Chinese laws and policies are numerous, so foreign investors should avoid treading in such minefields to the greatest extent possible. The engagement of local professional intermediary firms to participate in such transactions is recommended.

9. What has been the highlight of your M&A cases over the past 12 months and why was it challenging? Why was it unique and does it set any precedents?

During the past 12 months, the team that I lead dealt with a number of relatively influential cases in the industry. In particular was the acquisition of approximately 89% of the equity in House of Fraser, the oldest department store in the UK, by Nanjing Xinjiekou Department Store for approximately GBP155 million. This project was a cross-border acquisition and constituted a material asset restructuring of Nanjing Xinjiekou, with the transaction counterparties involving several tens of shareholders spread out over numerous countries in Europe and the transaction involving the legal procedures of several countries, domestic and foreign disclosure requirements and close cooperation of all parties. All of the domestic and foreign procedures were completed within about four months after the execution of the documents for the project. This project, reported by CCTV and a number of other media, has been dubbed the “largest direct overseas acquisition by a listed company in the retail sector in the history of Chinese A shares, and the largest overseas investment in the retail industry by a Chinese enterprise in history”.

Furthermore, the Rmb8 billion placement project of Dongxu Optoelectronic that we are currently handling is also extremely challenging; Dongxu Optoelectronic acquired equity in two target companies held by a number of state-owned shareholders by means of a non-public offering of shares to raise the funds. As it is necessary, when a transfer of target equity held by the state-owned shareholders is to be made, that a state-owned asset approval procedure and a listing procedure be carried out, coordination of the CSRC approval and the special procedure involved when state-owned equity is implicated becomes a key issue in the project. To my knowledge, there has not previously been any other similar case in the securities market.


Author biography

Hairong Li
Partner

Hairong Li graduated from China University of Political Science and Law and the University of Kitakyushu from which she received a bachelor of law and a master of law respectively. Since joining Zhong Lun in 2002, Hairong has mainly specialised in areas such as foreign investment, corporate M&A and restructuring, overseas investment and company listings. In recent years, Hairong has successfully handled a number of M&A projects that have been influential in the industry and have drawn broad attention domestically and abroad, such as Nanjing Xinjiekou's acquisition of House of Fraser, E Fund Kerui's acquisition of Honma Golf, Ningbo Yunsheng's acquisition of Nikko Electric Industry and Hongtu High Tech's acquisition of IDT International.

中伦律师事务所的李海容律师阐述了影响境内外并购的新法规、最吸引中外投资者的行业及和国企合作的特别策略

1. 过去12个月，并购方面出台了什么主要法规？

在过去的一年中，主管部门对并购的监管趋势在整体上是趋于放松、简化的。从境外并购的角度，在2014年，国务院公布了《政府核准的投资项目目录（2014年本）》、国家发改委先后公布了《境外投资项目核准和备案管理办法》及其修订版、商务部公布了《境外投资管理办法》，这些规定大幅度的压缩了境外投资的审批范围并简化了境外投资的审批、备案手续。此外，国家外汇局在2015年也公布了《关于进一步简化和改进直接投资外汇管理政策的通知》，将境外直接投资项下外汇登记核准改为通过银行对直接投资外汇登记实施间接监管。

另外，上市公司并购方面，2014年最大的亮点在于，根据证监会修订后的《上市公司重大资产重组管理办法》，在境内上市公司不以发行股份的方式运作构成重大资产重组的收购时，已经不再需要证监会的审核。这项改革对并购市场的影响是较为深远的。

2. 您对于来年的并购市场有什么展望？有什么法规有可能会影响并购交易？还需要什么样的变更可便利交易的进行？

在未来的一年，我对并购市场最大的期待是资本市场的注册制改革。注册制一旦成为现实，对并购市场的影响将是显著的：

1. 注册制实现后，可以预期企业境内上市的通道将会大幅拓宽，这对于境内PE、VC等投资机构而言，意味着更通畅的退出渠道。因此，注册制改革，将会进一步的激发股权类投资机构的投资热情，并带动并购市场的繁荣；

2. 注册制后，上市公司发行股份购买资产的审批也将进一步放开。这将会大幅缩减上市公司并购的审批时限，降低上市公司并购的时间成本，促进上市公司并购效率。

此外，今年6月国家发改委公布了《政府核准和备案投资项目管理条例》（征求意见稿）。根据该征求意见稿，“除涉及敏感国家和地区、敏感行业的境外投资项目按规定核准外，境外投资项目应当实行事后备案制”。该条例的出台无疑对公司并购特别是境外并购产生重大的积极影响。

3. 商务部出台的《关于经营者集中附加限制性条件的规定》对中国并购监管制度带来了什么影响？

对具有或者可能具有排除、限制竞争效果的公司并购，各国反垄断执法部门普遍采取严格监管的态度。中国于2007年颁布《反垄断法》，并在其第二十九条明确规定，“对不予禁止的经营者集中，国务院反垄断执法机构可以决定附加减少集中对竞争产生不利影响的限制性条件。”但此后很长时间，并无对关于经营者集中附加限制性条件的进一步细化的规定，由此，导致商务部在实际执法过程中有执法过程非透明化及执法差异化的嫌疑。

去年12月，商务部公布了《关于经营者集中附加限制性条件的规定》，我认为，这有益于执法的透明化，对并购而言，从长远来看是个利好。

4. 近期的立法提案是否有简化境外投资的行政程序？

今年6月国家发改委公布了《政府核准和备案投资项目管理条例》（征求意见稿）。根据该征求意见稿，“除涉及敏感国家和地区、敏感行业的境外投资项目按规定核准外，境外投资项目应当实行事后备案制”。该条例预计会于今年正式出台。该条例的出台将进一步为中国企业的境外投资审批程序放权减负，中国企业的境外投资将更加简便快捷。

5. 哪些国外行业最能够吸引中国投资者？您认为现在有哪些主要的交易趋势？

从目前中国企业境外投资的分布来看，主要集中于采矿业、租赁和商务服务业、金融业、制造业、信息传输、软件和信息技术服务业等行业。上述行业中，以我个人接触周围企业的感受来看，我比较看好商务服务业及信息传输、软件和信息技术服务业。

从交易趋势上看，我认为境外投资有两个比较明显的趋势：一个是投资方式逐渐多样化，跨国并购成为对外直接投资的主要方式。另一个值得注意的趋势是地方企业、非国有企业的身影增多，改变了以前主要靠央企、国企“走出去”的局面。

6. 在中国，哪些行业最能够吸引境外投资者？在并购业务中，哪些行业最活跃？

根据咨询公司科尔尼最新公布的调查报告显示，中国已连续三年蝉联科尔尼外商直接投资目的地排行榜榜单第二名，这些外商直接投资主要针对服务业，物流、电子商务、运输和金融等行业，这些行业是较为吸引境外投资者的。

7. 在中国境内（中西部），您观察到有哪些并购业务趋势？

目前，在中国境内中西部地区，外资并购有逐步增长的趋势，这主要归因于中国东部沿海地区发展渐趋饱和以及各方面成本的提高、国家西部大开发等相关政策的相继出台。

8. 无论是对内还是对外投资，您对与中国投资者进行交易的外国客户有何建议？

就外国客户而言，需要了解不同类别的中国投资者的不同风格。一般而言，与中国具有国企背景的企业进行合作时，往往会牵涉到一些特殊的国资审批程序，导致交易的进展会相对较慢，另外，国企内部也往往容易出现不同的声音，这些都需要有心理准备；同时，国企往往拥有雄厚的资金实力和对区域政策的影响力，这也是国企合作的优势。而中国的民营企业在投资风格上往往比较积极，决策效率也相对较高。

此外，中国的法律政策中对外资并购的限制较多，外国客户应尽量避免触碰到这些雷区，建议聘请中国当地专业的中介机构参与。

9. 过去12个月，您处理了什么重大并购案件？为何案件具挑战性？案件有什么独特、有否缔造先例？

在过去12个月内，我带领的团队处理过多起在业内具有较大影响力的案件。特别是南京新百以约1.55亿英镑收购英国历史最悠久的百货公司弗雷泽百货商店集团(House of Fraser) 约89%的股权。本项目为跨境并购并同时构成南京新百的重大资产重组，交易对方涉及分布于欧洲多个国家的几十个股东，交易涉及多个国家的法律程序、境内外的披露要求以及各方的紧密配合，项目于签约后约4个月时间内完成所有境内外程序。本项目被CCTV等多家媒体报道，被称为“中国A股有史以来最大的一笔零售业上市公司境外直接收购，同时也是中国企业有史以来最大的零售业境外投资”。

此外，正在做的东旭光电80亿定向增发项目也具有很大的挑战性：东旭光电通过非公开发行股票募集资金的方式收购多家国有股东持有的2家标的公司的股权。由于国有股东持有的标的股权在进行转让时，需要履行国资审批程序及挂牌程序，因此，证监会的审批与国资股权涉及到的特殊程序之间的协调就成为本项目的一个非常关键的问题。据我所知，此前证券市场上还没有类似的案例。


作者简历

李海容
合伙人

李海容律师毕业于中国政法大学、日本北九州大学，分别获得法学学士及法学硕士学位。李海容律师自2002年进入中伦执业以来，主要专注于外商投资、企业并购重组、境外投资、公司上市等业务领域。近年来，李海容律师成功承办了南京新百收购英国弗雷泽百货公司项目、科瑞基金收购日本HONMA高尔夫项目、宁波韵升收购日本日兴电机公司项目、宏图高科收购香港万威国际项目等众多在国内外被广泛关注的并购项目，在业内具有较大的影响力。