Presentation is loading. Please wait.

Presentation is loading. Please wait.

"Legal Issues in Private Equity and Listings for Chinese Companies" Mason Ching, LL.M. Principal Mason Ching & Associates 16 October 2008.

Similar presentations


Presentation on theme: ""Legal Issues in Private Equity and Listings for Chinese Companies" Mason Ching, LL.M. Principal Mason Ching & Associates 16 October 2008."— Presentation transcript:

1 "Legal Issues in Private Equity and Listings for Chinese Companies" Mason Ching, LL.M. Principal Mason Ching & Associates 16 October 2008

2 Speakers Profile Mason Ching is the founder of Mason Ching & Associates. He is qualified to practise in Hong Kong and England & Wales and holds an LLM degree with distinction in technology and investment laws. His experience is gained in Baker & McKenzie. His expertise is in venture investment, PRC direct investment, fund establishment, securities, listing, takeovers and other corporate finance matters.

3 Convertible Loan Preference Shares Series A or Series B Convertible Redeemable Voting Preference Warrants Common Shares Form of Private Equity Investment

4 Board seats Veto rights on certain key actions Information rights Profit guarantee and price adjustment When to convert Rights of preferred shares Terms of investment

5 Pre-emptive Right / Right of Participation Right of First Refusal Co-sale / Tag-along Drag-along Anti-dilution Down-side price protection – Full Ratchets or Weighed Average Protective Provisions

6 Non-compete covenants from controlling shareholders Put back option if IPO does not take place Confidentiality Founders guarantee Founders provision of security Founders indemnity Protective Provisions

7 Vendor sale at the time of IPO Placing after lock-up Issue of derivatives: warrants, exchangeable / convertible bond Repurchase by issuer Private Placements / Block Trade Exit - IPO

8 Repurchase by investee company Put back to founders Trade sale Forced trade sale Reverse takeovers Liquidation Exit– Aborted IPO

9 Hong Kong Regulatory Issues Listing Decisions Conversion Price toxic convertibles Lock-up

10 Target SOEs Private Enterprise Structure Red Chip Direct Investment Investing into China

11 Investment in legal person shares Valuation Approval process Restrictions on disposal of promoters shares PRC Company Law – shares issued by a company prior to the public offering of shares shall not be transferred within one year from the Listing Date Management buy-outs Investment in H shares Discount on IPO Price Investing into China – H Share potentials

12 Ping An Insurance (Group) Company of China Ltd. (2005) Goldman Sachs and Morgan Stanley invested in 1994 Dai-Ichi Mutual Life Insurance HSBC Insurance subscribed for 10% equity interest (legal person shares) in 2002 Legal person shares converted into H Shares Case Studies – Ping An

13 Red chip restructuring Relevant PRC Laws Notice of the State Administration of Foreign Exchange on the Relevant Issues Concerning Foreign Exchange Administration of Financing and Returning Home Investment by Domestic Residents through Special-purpose Companies ( ) issued by The State Administration of Foreign Exchange ("SAFE") on 21 November 2005 Notice on Relevant Issues in the Registration of the Offshore Investments of Individual Domestic Residents and Foreign Exchange Registration of Mergers and Acquisitions by Foreign Investors ( ) issued by SAFE on 21 April 2005 Notice on Relevant Issues in Perfecting Foreign Exchange Control in Mergers and Acquisitions by Foreign Investors ( ) issued by SAFE on 24 January 2005 Private Enterprises (non-H Share Listing)

14 No.75 Notice Returning home investment - direct investment activities carried out inside China by residents inside China through a special purpose company: to acquire or swap the interest of the Chinese party in an enterprise inside China; to establish a FIE inside China and acquire control of assets inside China through that FIE; Foreign exchange registration Repatriation and use of funds

15 Provisions of the Ministry of Commerce, State-owned Assets Supervision and Administration Commission of the State Council, the State Administration of Taxation, the State Administration for Industry and Commerce, Securities Regulatory Commission of China and the State Administration of Foreign Exchange on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors (2006Revision) Took effect on 8 September 2006 Applies to domestic enterprises only MOC and CSRC approval required for restructuring and oversea listing of a special purpose vehicle Share swap allowed Unwind after 12 months failing listing Private Enterprises (non-H Share Listing)

16 Notice of the General Affairs Department of the State Administration of Foreign Exchange on Printing and Distributing the Operating Rules for the Notice of the State Administration of Foreign Exchange on the Relevant Issues about Foreign Exchange Control over the Financing and Return Investment of Domestic Residents through Overseas Special Purpose Companies (No. 106 [2007] of the General Affairs Department under the State Administration of Foreign Exchange) ( (2007 ) [2007]106 )

17 Successful Structure for Red-Chip Original Shareholders do not retain control post-IPO Transfer of Assets Third party involvement

18 Case Study – Solargiga Energy Holdings Limited (Stock Code 757) Mr. TAN SEC Huaxin Silicon PLC Jinzhou Xinri (PRC) Jinzhou Yangguang (PRC) Jinzhou Huari (PRC) Jinzhou Huachang (PRC) 74.1%75%25.83%25%70%30%25%75% 100%

19 Solargiga – After restructuring WWIC TIL (BVI) Company (Cayman Islands) SECMr. TAN Other Relevant Officers Other Shareholders Mr. CHONG Solartech (Cayman Islands) BVI Company Jinzhou Xinri (PRC) Jinzhou Huari (PRC) Jinzhou Yangguang (PRC) Jinzhou Huachang (PRC) Jinzhou Youhua (PRC) Shanghai Jingji (PRC) 33% 100% 3.12%16.3%8.55%10.61%28.42% 100%

20 Case Study – Xingfa Aluminium Holdings Limited (Stock Code 98) Messrs. Luo Su, Luo Riming and Liao Yuqing Xingfa Group Xingfa Aluminium Xingfa SG Xingfa BVI Xingfa Curtin Wall Our Company Leahin CoatingXingfa Innovation 100% 51% 91.3%

21 Case Study – JES – Singapore Acquisition of assets, liabilities, operations and business Processing Agreement Restricted Cash Account Agreement Debt Repayment Agreement Fixed Assets Lease Agreement Entrusted Loan Agreement

22 Restricted for Foreign investment Fixed line Tobacco ICP – Internet contents Mobile contents – mobile phone entertainment Digital publication – online game Investing in Restricted Categories

23 Special Structure Need to consolidate accounts Loan agreement Option agreement Equity pledge Undertaking / power of attorney Technical service / business agreement Trade name and copyright license Investing in Restricted Categories

24 Listing Decision – LD 43-3 (2005) Company A PRC Subsidiaries Structure Contracts Owning all operating licences to perform the Groups business Registered Owners Structure Contracts Owning all intellectual properties OPCO Outside PRC Inside PRC 100%

25 Direct Investment Vehicle Foreign-invested Enterprises EJV, CJV and WFOE Foreign-invested Joint Stock Companies RMB Fund Set up a WFOE Direct Investment

26 Convertible Loan / Warrants Preference Shares Series A or Series B Convertible Redeemable Voting Direct Investment

27 Repurchase by issuer Private Placements / Block Trade - Measures for Administration of Strategic Investment by Foreign Investors in Listed Companies Put back to founders Trade sale Forced trade sale Reverse takeovers Liquidation - Measures for Liquidation of Enterprise with Foreign Investment Direct Investment

28 RMB Fund [2003] 2 Promulgated by the Ministry of Foreign Trade and Economic Cooperation Ministry of Science and Technology State Administration for Industry and Commerce State Administration of Taxation and State Administration of Foreign Exchange on 30 January 2003 and effective as of 1 March 2003.

29 RMB Fund Regulations the number of investors shall be more than two and less than 50 and there shall be at least one requisite investor as specified in Article 7 the minimum amount of capital contribution a Non-legal Person Venture Investment Enterprise - US$10 million a Corporate Venture Investment Enterprise - US$5 million. having a clear organizational form having a clear and legitimate investment direction at least three professional management personnel with experience in venture investment business and other conditions stipulated by laws and administrative regulations.

30 RMB Fund Regulation having venture investment as its main line of business having cumulative capital under its management of not less than US$100 million in the three years before the application and at least US$ 50 million of which has been used for venture investment. having at least three professional management personnel with not less than three years experience in venture investment business not have been prohibited by the judicial authorities or other relevant regulatory authorities of their own countries from engaging in venture investment or investment and consultancy business or subjected to penalty for reasons such as fraud capital contribution - a Non-legal Person Venture Investment Enterprise – 1%; a Corporate Venture Investment Enterprise - not less than 30%

31 Set up a WFOE WFOE as investment vehicle

32 Consent of the Commerce Department Approval of supervisory department Approval of CSRC Shanghai stock exchange Shenzhen stock exchange Shenzhen SME A Share Market as an Exit Channel

33 Regulatory risks Political risks Credit risks Weak in law enforcement Aggressive creditors Loose control over special structure Entrepreneurs Integrity Risks associated with intermediaries Risks of Investing in China

34 - Thank You - Mason Ching Tel: Fax:


Download ppt ""Legal Issues in Private Equity and Listings for Chinese Companies" Mason Ching, LL.M. Principal Mason Ching & Associates 16 October 2008."

Similar presentations


Ads by Google