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M&A in China

M&A in China

2. The Measures for the Administration of Strategic Investment in Listed Companies by Foreign Investors (the “Strategic Investment Measures”)

The new M & A rule regulates the strategic purchase of the listed equity. Following this rule, the MOFCOM, CSRC, SAT, SAIC, and SAFE on 31 December 2005 jointly released the Measures for the Administration of Strategic Investment in Listed Companies by Foreign Investors and the Strategic Investment Measures became effective on 31 January 2006.

(A) Strategic Investor Qualification

An investor shall satisfy following qualification for making strategic investment:

  1. It is a foreign legal person or other organization that is established and operated according to law, with sound finance, good credit standing, and mature management experiences;
  2. Its total overseas paid-in capital shall be no less than USD 100 million or the total overseas paid-in capital under its management shall be no less than USD 500 million; or the total overseas paid-in capital of its overseas parent company is no less than USD 100 million or the total overseas paid-in capital under the management of its parent company shall be no less than USD 500 million;
  3. It has sound governance structure and sound internal control system, and criterions for management acts; and
  4. It (including its parent company) has no records of grave penalties by any regulatory institution both home and abroad within the past three years.

And when making strategic investment, an investor shall also comply with the following requirements:

  1. The A share stock of a listed company is obtained by way of transfer under an agreement or directional issuance of new shares by the listed company or by any other means as prescribed by any state law or regulation;
  2. The investment may be made by stages, the proportion of shares obtained by it after completing initial investment shall be no lower than 10% of the shares having been issued by the company, unless there are special provisions in a special industry or it is approved by the competent departments;
  3. The A share stock of a listed company obtained by the investor shall not be transferred within 3 years;
  4. For the industry for which there are clear provisions by any law or regulation on the proportion of shares held by a foreign investor, the proportion of shares of the aforesaid industries held by an investor shall comply with the relevant provisions; for any fields to which foreign investment is prohibited by any law or regulation, the investor shall not make investment in any listed company in the aforesaid field; and
  5. In case any state-owned shareholder of a listed company is involved, it shall comply with the relevant provisions on state-owned assets administration.

(B) Procedures and Documents

The investor may make strategic investment by way of directional issuance of a listed company or transfer under an agreement.

In the case of the strategic investment is made by way of directional issuance of a listed company, it shall be handled in light of the following procedures:

  1. The board of directors of the listed company adopts the resolutions on directional issuance of new shares to investors and amendments of the draft of the articles of association of the company;
  2. The shareholders’ meeting of the listed company adopts the resolutions on directional issuance of new shares to investors and amendments of the articles of association of the company;
  3. The listed company enters into a directional issuance contract with the investor;
  4. The listed company submits the relevant application documents to the MOFCOM in accordance with Article 12 of the Strategic Investment Measures, if there is any special provision, it shall be followed;
  5. After obtaining the approval letter in principle from the MOFCOM for the strategic investment in the listed company by an investor, the listed company shall submit the application documents for directional issuance to CSRC, and CSRC shall grant approval according to law; and
  6. After completing the directional issuance, the listed company shall obtain the certificate of approval for foreign-funded enterprises from the MOFCOM, and proceed with the alteration in registration at the Administrative Department of Industry and Commerce upon receipt of the certificate of approval.

However, in the case of any strategic investment is made by way of transfer under an agreement, it shall be handled in light of the following procedures:

  1. The board of directors of a listed company adopts the resolutions on the strategic investment of an investor by way of transfer under an agreement;
  2. The shareholders’ meeting of a listed company adopts the resolutions on the strategic investment of an investor by way of transfer under an agreement;
  3. The transferor enters into a share transfer agreement with the investor;
  4. The investor submits the relevant application documents to the MOFCOM in accordance with Article 12 of the Strategic Investment Measures, if there is any special provision, it shall be followed;
  5. If an investor takes stake in a listed company, he/she shall proceed with the procedures for confirmation of share transfer at the Securities Exchange upon the approval of the aforesaid application. An investor shall also proceed with account transfer registration at the Securities Depository and Clearing institution. The documentation as aforementioned shall be sent to CSRC for filing; and
  6. After the completion of the transfer under an agreement, the listed company shall obtain the certificate of approval for foreign-funded enterprises from the MOFCOM, and proceed with alteration in registration at the Administrative Department of Industry and Commerce upon the receipt of certificate of approval.
  7. In case an investor intends to actually control a listed company by way of transfer under an agreement, it shall, after obtaining the approval in light of the procedures of items (i) through (iv) abovementioned, submit the report on the acquisition of a listed company and the relevant documents to the CSRC, and comply with the formalities for confirmation of the share transfer at the Stock Exchange after the CSRC has made examination and has no dissent, then apply for registration and transfer at the Securities Depository and Clearing institution. After completing the aforesaid formalities, the investor shall proceed with the procedure set out in item (vi) abovementioned.

A listed company or investor shall also submit the following documents to the MOFCOM:

  1. Application Letter for Strategic Investment;
  2. Strategic Investment Scheme;
  3. Directional issuance contract or share transfer agreement;
  4. Opinions of a recommendation institution (in case of a directional issuance) or legal opinions;
  5. The letter of commitment for holding shares incessantly by the investor;
  6. Statements of the investor on its having no records of grave punishment by any regulatory institution both home and abroad within three years, and statements on whether it has any other record of non-grave penalties;
  7. The registration certificate of the investor that has been notarized and certified according to law, and the identity certificate of the legal representative (or the authorized representative);
  8. The statements of assets and liabilities of the investor in recent three years, which have been audited by a certified accountant;
  9. The documents to be submitted as prescribed in the aforesaid items (1), (2), (3), (5), and (6) shall be signed by the legal representative of the investor or its authorized representative, if the documents are signed by the authorized representative, the power of attorney signed by the legal representative and the corresponding notarized or certified documents shall be submitted; and
  10. Other documents as prescribed by the MOFCOM.

The MOFCOM shall give approval letter in principle within 30 days after the receipt of all the aforesaid documents, and the valid period of the approval letter in principle shall be 180 days.

 

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Posted on

2015-02-03