Charltons provides high impact advice to clients on China M&A, both public and private mergers and acquisitions, particularly on deals with a cross-border or significant PRC dimension. We represent buyers, sellers, major shareholders, lenders, financial advisors, management groups and independent director committees. We have advised on PRC M&A transactions across a range of industries, and are particularly experienced in deals in the natural resources sector.
We have almost two decades of experience in China and have offices in Shanghai and Beijing, as well as long established relationships with top Chinese law firms in all of the major Chinese cities. Our deep local knowledge and international perspective gives us a unique insight into Chinese business practices and issues facing foreign companies negotiating China M&A deals.
We provide complete project management, advising clients from the early stages of a mergers and acquisitions transaction through strategic preparations and planning, structuring, due diligence, tax and foreign exchange issues, deal financing, negotiation and closing.
We aim to provide smart and practical advice when encountering the many issues that typically arise in the course of a mergers and acquisitions transaction, including political considerations, cultural and communication barriers, national security concerns and brand protectionism. We guide clients through the complex PRC regulatory requirements, foreign investment restrictions and governmental approvals/filings involved in acquisition of PRC companies and assets, including approval by/filings or registration with the Ministry of Commerce (MOFCOM), National Development and Reform Commission (NDRC), State Administration for Industry and Commerce (AIC), China Securities Regulatory Commission (for acquisitions of listed companies) and State Owned Enterprises and Assets Supervisory Bureau (for acquisitions of state-owned assets). We also assist in merger control and competition related matters in China, including filings with the Anti-Monopoly Bureau of MOFCOM under China’s Anti-Monopoly Law.
In addition to advising on inbound M&A in China, we have acted on some of the most ground breaking Chinese “outbound” mergers and acquisitions deals in recent years, including Zijin Mining’s acquisition of Monterrico Metals, one of the first takeovers of a UK listed company by a Chinese acquirer. We have experience in the particular challenges faced by Chinese companies in outbound M&A, from dealing with political sensitivities and investment restrictions on state owned enterprises in countries like the US and Australia, to domestic concerns and regulatory approvals for outbound acquisitions that can complicate deal making and put Chinese bidders at a disadvantage, particularly in auction situations.
Acquisition of a domestic PRC company
A foreign investor may acquire a domestic PRC company by way of: (i) equity acquisition – namely, to acquire equity interest in the domestic enterprise from existing equity holders or to contribute to capital increase of the domestic enterprise to change it into a FIE; or (ii) asset acquisition – namely, to set up a FIE to acquire assets of the domestic enterprise or to acquire the assets for contribution to the FIE as capital, following which the FIE will operate the assets.
The acquisition of a domestic PRC company by a foreign investor (c.f. investment in a FIE), whether by way of equity acquisition or asset acquisition, is regulated by Provisions on Foreign Investors’ Merger with an Acquisition of Domestic Enterprises 2009 (“M&A Regulations”) promulgated by Ministry of Commerce (“MOFCOM”) and five other government agencies. Since October 2016, the MOFCOM approval regime for the establishment of FIE has been replaced with a simplified filing system for foreign investments in sectors that fall outside the Special Administrative Measures for Access of Foreign Investment (Negative List).
Under the PRC M&A Regulations and the Negative List, the foreign investor would be required to (i) make a record filing with or seek for project verification with the local level or Central National Development and Reform Commission (NDRC) approval; (ii) submit an application to MOFCOM (or its local counterpart) for issuance of a certificate of approval (normally issued, if application is granted, within 30 days from date of submission) for investment fall within the Negative List; or make filing with the MOFCOM if the investment is in sectors that are not covered by the Negative List; (iii) apply and obtain a business licence from the State Administration of Industry of Commerce (SAIC) or its local counterpart following receipt of certificate of approval; (iv) register with applicable government agencies including the State Administration of Foreign Exchange (SAFE), State Administration of Taxation (SAT), customs, land administration, or their local counterparts etc. within 30 days from receipt of business licence.
For equity acquisitions, the application to MOFCOM would normally include such documents as unanimous equity holders’ consent, application for conversion into FIE (together with related JV contract or constitutional documents for the FIE), appraisal report and notarised identity of proof of foreign investor etc.
For asset acquisitions, the application to MOFCOM would normally include such documents as consent of property owner in respect of the sale of the relevant assets, application for establishment of a FIE, notice to creditors as well as creditors’ confirmation of no object to the transfer of relevant assets, appraisal report and notarised identity of proof of foreign investor etc.
Charltons provides high impact advice to clients on China M&A, both public and private mergers and acquisitions, particularly on deals with a cross-border or significant PRC M&A dimension.