Removing roadblocks to M&A

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

On December 2 2013, the State Council promulgated the revised List of Investment Projects Subject to Government Check and Approval (2013) (the 2013 List). With respect to overseas acquisitions and investments by Chinese enterprises, the new catalogue clearly signals to the market that Chinese regulators are currently focusing their attention on “special projects” and overseas investments of Chinese enterprises in which the investment is at least US$1 billion.

Subsequently, based on the 2013 List, 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 (Order of the NDRC No.9) in April 2014, replacing the Tentative Measures for the Administration of the Check and Approval of Overseas Investment Projects promulgated by the NDRC in 2004. Shortly after that, the Ministry of Commerce (MOFCOM) promulgated the Measures for the Administration of Overseas Investment (Revised) (Draft for Comments) on April 16, proposing to revise its 2009 Measures for the Administration of Overseas Investment.

In July 2014, the State Administration of Foreign Exchange (SAFE) issued the Circular on Issues Relevant to Exchange Control in Connection with Overseas Investment/Financing and Round-trip Investment by Residents in China Through Special Purpose Vehicles (Hui Fa [2014] No.37). With the replacement of Document 75 with Document 37, the foreign exchange registration procedure for the establishment of special purpose vehicles by residents in China involved in overseas M&A and their round-trip investment is clearer, simpler and more convenient. However, it must also be acknowledged that Document 37 has only made a few improvements in convenience from the perspective of exchange control and fails to provide any opinions on the direction SAFE favours with respect to VIE structures that have been the centre of attention in red chip structures or to the issue of affiliated acquisitions under M&A Regulation No.10.

In May 2014, the China Securities Regulatory Commission promulgated the Tentative Measures for the Administration of the Offering of Securities by Companies Listed on the Growth Enterprise Market, ending the history of the Growth Enterprise Market's lack of a refinancing mechanism. Pursuant to these Measures, if the proceeds derived from a private placement of shares are used for an acquisition or merger, application of the offering condition of profitability during the most recent two years is exempted. It is widely anticipated in the industry that the pace and scale of Growth Enterprise Market M&A will further increase. Furthermore, with the formal implementation of the Measures for the Administration of the Acquisition of Unlisted Public Companies and the Measures for the Administration of Material Asset Restructurings of Unlisted Public Companies in July 2014, the M&A activities of New Third Board listed companies will have legal provisions to follow.

2. What is your outlook for M&A for the year ahead What legislation is likely to affect M&A What changes would you like to see to already promulgated legislation to ease M&A transactions

Clearly, the overseas M&A activities of mainland Chinese state-owned and private enterprises will remain active. With the enhanced market competitiveness brought about by industry consolidation and industry segmentation reform, domestic industry M&A transactions are bound to set a new record. A-share listed companies will become an important driving force in domestic M&A activities. Although there will be a rebound in private fund divestment transactions with the recommencement of IPOs, there will nevertheless be an increasing number of private funds that will achieve divestment through means such as M&A and second sale.

MOFCOM's solicitation of opinions on the above mentioned Measures for the Administration of Overseas Investment (Revised) (Draft for Comments) ended on May 15, and, based on relevant predictions, there is hope that they will be promulgated in 2014.

The new approval and record filing system under the 2014 Order of the NDRC No.9 retains the requirement of a project information reporting system for overseas projects of at least US$300 million. Overseas companies of Chinese enterprises likewise need to keep in mind the relevant Development and Reform Commission approvals and record filings when carrying out specific reinvestment projects. Additionally, the Development and Reform Commissions at every level still retain the discretion to grant approval or record filing. Accordingly, the relevant reforms do not appear completely thoroughgoing, still posing uncertainty in the overseas transactions (particularly in competitive bidding) of Chinese enterprises, and Chinese investors need to continue to consider securing the relevant approvals and record filings as conditions precedent for going ahead with a transaction.

Furthermore, looking at the relevant provisions of the Order of the NDRC No.9 and the Measures for the Administration of Overseas Investment (Revised) (Draft for Comments) of MOFCOM, a new trend seems to be the increasing independence of the commerce authorities' record filing and check and approval mechanism from that of the Development and Reform Commissions. Such changes will pose new challenges for future transactions. At present, the check and approval and record filing authority in the MOFCOM system ignores monetary amounts, the principle being that projects involving sensitive countries, regions or industries require MOFCOM's check and approval, the projects of enterprises directly under the central government are placed on the record with MOFCOM, and those of local enterprises are placed on the record with the local commerce authority at the relevant level. It would seem that the philosophy of MOFCOM can be understood as all projects are now subject to the record filing system, except for those that involve sensitive countries, regions or sensitive industries and, therefore, require check and approval of MOFCOM. Normally, the NDRC and MOFCOM will determine whether a project is one requiring check and approval based on the Ministry of Foreign Affairs' determination of which countries and regions are deemed sensitive. Needless to say, the specific list of sensitive countries and regions is not published for foreign policy and other reasons, but there is a clear demarcation among government authorities. However, it should be noted that projects involving “sensitive industries” may be somewhat more complicated. At present, MOFCOM's demarcation of sensitive industries is relatively simple, generally only referring to technologies and products the export of which is restricted in China or projects involving the interests of multiple countries and/or regions. In contrast, the NDRC's demarcation of sensitive industries is relatively more detailed, e.g. transmission lines, backbone grids, etc. constitute sensitive industries in the eyes of the NDRC and thus require check and approval.

3. The growth rate of outbound investments has surpassed that of inbound. Are there any regulatory initiatives to increase the pace of inbound investments Have any recent initiatives eased administrative burdens for outbound investments

Inbound

In March 2014, the new Company Law finally set the registered capital subscription system down in legal form, but its scope of application remained limited to domestically-invested enterprises. In June 2014, MOFCOM promulgated the Circular on Improving the Administration of the Review of Foreign Investment, which expanded the scope of application of the registered capital subscription system to foreign-invested enterprises, by abolishing the restrictions or provisions on the initial capital contribution percentage, the percentage of capital contributions made in cash and capital contribution deadlines of foreign-invested enterprises; permitting investors to agree on, at their own discretion, the capital contribution amounts subscribed for as well as the capital contribution method and deadlines; and abolishing the minimum registered capital restriction for foreign-invested enterprises in ordinary industries. This move relaxes the controls on market access and genuinely improves the business environment.

Furthermore, in May 2014, the NDRC promulgated the Measures for the Administration of the Check and Approval and Record Filing of Foreign-invested Projects, which explored the trial implementation of national treatment for foreign investment in terms of the administration of access – with the exception of projects in the encouraged category requiring control (including relative control) by the Chinese party and in the restricted category of the Foreign Investment Industrial Guidance Catalogue. The method of administration of other foreign-invested projects is consistent with that for domestically-invested projects. Additionally, the new Measures simplify the conditions for the check and approval or record filing of foreign-invested projects, no longer requiring a review of aspects that should be decided on by an enterprise at its own discretion, such as the project's market prospects, economic returns or product technology plan, and instead placing emphasis on the determining function of the market in allocating resources, granting enterprises the right to make their own investment decisions and enhancing the level of convenience for foreign investment.

Outbound

As mentioned above, the Order of the NDRC No.9 establishes a method of administration of Chinese enterprises' overseas investment projects that is mainly effected through record filing, while it also greatly delegates record filing administration authority to the lower levels and simplifies the record filing procedure. MOFCOM's Draft establishes a new mechanism in which “record filing is primary, and check and approval secondary”, expressly reflecting the active stance of MOFCOM towards further substantively simplifying the mechanism for reviewing the overseas investments of Chinese enterprises. Under the new “dual layer” record filing regime, Chinese enterprises should be able to complete the relevant record filing procedures of the NDRC and MOFCOM in as little as one to two weeks for China overseas investments and acquisitions of less than US$300 million that do not involve a sensitive country, region or industry.

4. What is your advice to foreign clients engaging in M&A with Chinese investors, both inbound and outbound

In contrast with western business decision makers, Chinese business decision makers are not used to strict transaction procedures and time control. To arrive at a final decision, Chinese companies usually require more time. In addition to preliminary due diligence and reasonable valuation in the course of a transaction, the implementation of a subsequent genuinely feasible integration plan is a key factor in the success of a transaction, e.g. involving culture and human resources integration, product and service integration and rationalisation, accounting and financial affairs conversion and customer and supplier integration. Additionally, tax planning related issues should also be taken care of as soon as possible and relevant tax arrangements should be revised in line with the new regulations and policies continuously issued by government authorities – failure to do so will directly affect the transaction structure and future profits.

5. 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

At the end of 2013, Alliance J&S Law Firm assisted a domestically-listed company in an attempt to acquire equity in a technology company in Europe with the objective of a technology transfer.

The challenge lay in how to realise a technology transfer that removes the technological barriers – this became one of the main reasons why the acquisition was ultimately shelved. In an overseas acquisition where the objective is technical know-how, the study of the technical documentation at the early stages presents itself as particularly important, e.g. the investigation of the technology itself, the valuation of the technology, the intellectual property matters and tax planning in an international transfer of technology, the interface of, and digestion by, skilled personnel in China with/of the imported technology, etc.

Fortunately, in another case, Alliance J&S Law Firm successfully assisted a listed company in acquiring another company listed in Europe. The main challenges in such an acquisition, where the acquirer and the target are both enterprises listed in different jurisdictions, are that the acquisition procedure and method need to simultaneously comply with the relevant laws and information disclosure requirements applicable to both the domestically-listed company and the company listed abroad, and that the transaction structure, financing arrangements and implementing steps need to be designed on this basis.

1. 过去12个月，并购方面出台了什么主要法规？

2013年12月2日，国务院颁布了修改后的《政府核准的投资项目目录(2013年本)》（“2013目录”），就中国企业的海外并购投资而言，该新目录向市场发出的明确信号是：目前中国监管机关重点关注属于“特殊项目”或中方投资额达到10亿美元以上的中国企业境外投资。

此后，根据2013目录，国家发展和改革委员会（“国家发改委”）于2014年4 月颁布《境外投资项目核准和备案管理办法》（“发改委9号令”），取代了国家发改委2004年发布的《境外投资项目核准暂行管理办法》。紧随其后，商务部于4月16日发布了《境外投资管理办法(修订)(征求意见稿)》，拟对其2009年的《境外投资管理办法》进行修订。

2014年7月，国家外汇管理局发布《关于境内居民通过特殊目的公司境外投融资及返程投资外汇管理有关问题的通知》(汇发[2014]37号)。37号文取代75号文， 跨境并购涉及的境内居民设立特殊目的公司并返程投资的外汇登记流程更清晰、简化、便捷。但同时不得不承认的是，37号文仅从外管角度进行了一些便利性改善，对于红筹架构中备受关注的VIE架构、10号文下的关联并购问题等，并未给出任何倾向性意见。

2014年5月，中国证监会发布了《创业板上市公司证券发行管理暂行办法》，结束了创业板无再融资机制的历史。根据该办法，非公开发行股票募集资金用于收购兼并的，免于适用最近两年盈利的发行条件。业内普遍预期，创业板并购节奏和规模将会进一步扩大。此外，2014年7月《非上市公众公司收购管理办法》和《非上市公众公司重大资产重组管理办法》正式实施后，新三板挂牌企业的并购活动也将更为有章可循。

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？您希望看到已公布的法规会有什么改变以致并购交易能更顺利进行？

显然，中国大陆国有和民营企业的海外并购活动将继续活跃；随着行业整合和细分行业改革带来的更多的市场竞争力，境内的产业并购交易活动将创历史新高；A股上市公司将成为境内并购交易活动的重要推动力量；虽然私募基金退出交易将会随着IPO重有所反弹，但是仍将会有越来越多的私募基金通过并购和二次出售¹的方式实现退出。

前述商务部《境外投资管理办法(修订)(征求意见稿)》在5月15日结束征集意见，据有关预测，该办法有望在2014年内出台。

2014年发改委9号令对于3亿美元以上的境外项目，新的核准和备案制度仍然保留了项目信息报告制度（即“路条”）的要求。中国企业的海外公司进行特定的再投资项目也仍然需要考虑境内相关发改委部门的核准或备案。同时，对于是否予以核准或备案，各级发改委仍然享有斟酌权。因此，相关的改革似乎并不彻底，仍然会给中国企业在境外的交易（尤其是竞争性投标）带来不确定性，而中国投资者仍然需要考虑将获得有关的核准和备案作为实施交易的先决条件。

另外，从发改委9号令与商务部《境外投资管理办法(修订)(征求意见稿)》的相关规定来看，一个新的趋势似乎是，商务部门的备案和核准机制将越来越独立于发改部门的备案和核准机制，这些变化将给未来的交易实务带来新的挑战。目前看来，商务部系统的核准和备案权限是不分金额的，原则是涉及敏感国家、地区和敏感行业的项目在商务部核准；中央企业的项目在商务部备案；地方企业在各级地方商务部门备案。商务部的理念似乎可以解读为除去涉及敏感国家、地区和敏感行业的项目须经商务部核准外，其他项目全部改为备案制。通常，国家发改委和商务部都会根据外交部对敏感国家和地区的认定判断是否属于需核准项目，毋庸讳言，出于外交政策等原因，敏感国家和地区的具体清单是不会公示的，但在政府部门内部而言，是有清晰界定的。但值得注意的是，涉及“敏感行业”的项目可能就要复杂一些。目前看来，商务部对敏感行业的界定较为简单，一般仅指涉及国内限制出口的技术、产品，或涉及多国利益；而国家发改委对敏感行业的界定则相对更为细致，例如输电线路、骨干电网等都会构成国家发改委视线内的敏感行业而需核准。

3. 对外投资的增长速度已超越对内投资。法规上有没有什么举措可激励对内投资赶回它的步伐？最近有没有什么举措可缓解对外投资的行政负担？

对内投资

2014年3月，新《公司法》最终将注册资本认缴制以法律形式确定下来，但其适用范围仍限于内资企业。2014年6月，商务部发布了《关于改进外资审核管理工作的通知》，将注册资本认缴制的适用范围扩大到了外商投资企业，包括取消外商投资企业首次出资比例、货币出资比例和出资期限的限制或规定；允许投资者自主约定认缴出资额、出资方式、出资期限；并取消一般行业外商投资企业的最低注册资本限制。这一举措放松市场主体准入管制，切实优化了营商环境。

此外，2014年5月，国家发改委发布《外商投资项目核准和备案管理办法》，在准入管理上对外商投资探索试行国民待遇，即除《外商投资产业指导目录》中有中方控股（含相对控股）要求的鼓励类项目和限制类项目外，其余外商投资项目管理方式与内资项目一致。同时，该新办法对外商投资项目核准、备案的条件也进行了简化，不再对项目的市场前景、经济效益和产品技术方案等应由企业自主决策的内容进行审查，注重让市场发挥配置资源的决定性作用，赋予企业投资自主权，提高外商投资便利化水平。

对外投资

如前所述，发改委9号令确立了发改委对于中国企业境外投资项目以备案为主的管理方式，同时大幅下放备案管理权限，并简化了备案程序；商务部的征求意见稿确立了“备案为主、核准为辅”的新机制，明确反映了商务部对进一步实质性简化中国企业境外投资审核机制的积极态度。在新的“双重”备案体制下，对于3亿美元以下的、没有涉及到敏感国别（地区）和行业的中国境外投资并购，中国企业最快应当能够在1-2周内完成发改部门与商务部门相关备案手续。

4. 在对内和对外投资两方面，对于和中国投资者进行并购交易的外国客户，您有什么意见可给予他们？

与西方的商业决策者不同，中国的商业决策者不习惯严格的交易流程和时间控制，中国公司作出最终决策往往需要花费更多的时间。对于交易成功最重要的因素除了前期的尽职调查、交易中合理估值外，后期切实可行的整合计划的执行也至关重要，如涉及到文化和人力资源的整合，产品和服务的整合及合理化，会计和财务的转换，以及客户和供应商的整合等。同时，税务筹划相关问题也应尽早安排，政府部门不断发布新的规定和政策，相关的税务安排也应随之进行调整，否则都将直接影响其交易结构和未来的盈利。

5. 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？

2013年底，颐合中鸿律师协助境内一上市公司以技术转移为目的在欧洲拟收购某技术公司的股权。挑战在于如何实现消除技术壁垒的技术转移，其也是该并购最终搁置的主要原因之一。对于以技术诀窍为目标的境外收购，先期对技术资料的研究显得格外重要，如对技术本身的调查、技术估值、国际技术转移中的知识产权事宜和税务筹划、国内人才对引进技术的对接与消化吸收等等。

值得庆幸的是，颐合中鸿律师协助某上市公司在欧洲收购另一家上市公司的案例得以完成。该项收购的主要挑战则在于收购方和被收购方同时为不同法域的上市企业时，收购流程和方式需要同时符合境内外上市公司的相关法律规定、信息披露要求，并在此基础上设计交易结构、融资安排和实施步骤等。