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 国内新闻：商业部严格审查中国居民返程投资 |
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安普若
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头衔: 海归元勋
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加入时间: 2004/02/21
文章: 26038
来自: 中国美国的飞机上
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作者：安普若 在 海归商务 发贴, 来自【海归网】 http://www.haiguinet.com
PRC "Round Trip" transactions subject to closer MOFCOM scrutiny
A New Storm Ahead for Venture Capital / Private Equity in China?
It was not long ago that the State Administration of Foreign Exchange ("SAFE") sent a shockwave through the PRC venture community with the promulgation of Circular Notice No. 11 and Circular Notice No. 29 (together, the "Earlier Circulars"). The somewhat onerous and vaguely-drafted Earlier Circulars left many venture professionals worried, and sidelined venture deals for much of 2005. Following SAFE's latest promulgation of Circular Notice No. 75 on November 1, 2005 ("Circular 75"), which repealed the Earlier Circulars, the venture community more or less returned to "business as usual."
However, recent developments suggest that China's Ministry of Foreign Commerce ("MOFCOM"), which has broad authority to regulate foreign commerce in China, may be looking to share the limelight with SAFE. According to market sources, MOFCOM has indefinitely delayed a number of recent transactions involving the acquisition of domestic companies by offshore vehicles where the transactions involve round-trip investments by PRC residents.
Market Whispers...
We understand that MOFCOM may indeed be putting a hold on granting approval for some transactions involving round-trip investments. Market rumors suggest that MOFCOM may be starting to look more closely at post-Circular 75 investment structures involving round-trip investments, though it has yet to promulgate any formal regulations on this point. Our independent inquiries with MOFCOM resulted in mixed responses that neither confirm nor deny these rumours. MOFCOM officials maintain that the agency continues to support venture financing in the PRC.
Not all Transactions are Caught.
This is a very recent development, and as of yet it seems that not all transactions are affected. MOFCOM is divided into three hierarchical tiers: the State-level, the Provincial-level, and the District-level. The issues discussed in this News Flash largely concern MOFCOM activities at the State and Provincial levels, whose authority over a particular foreign transaction is delineated by its dollar amount and the industry involved. The State-level of MOFCOM, for instance, has jurisdiction over foreign transactions where the total investment value is more than US$30 million or, if the transaction is under US$30 million, where the transaction involves an industry that is restricted or prohibited for foreign investment. Depending on the value of the transaction and/or the nature of the industry, some transactions do not fall under the jurisdiction of the District level of MOFCOM.
PRC Venture Capital, Private Equity and M&A Deals at Risk?
When making investments in China, foreign investors often rely on a transaction structure whereby the investors acquire the equity interest of the PRC target company through an offshore company, pursuant to the Interim Provisions on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors of 2003 (the "M&A Regulations").1 Pursuant to other applicable PRC regulations and the M&A Regulations, the offshore SPV acquiring the equity of the PRC target company converts the PRC target company into a foreign invested enterprise ("FIE") and, if the acquisition is for 100% of the equity, the PRC target company is converted into a WFOE. The conversion of the domestic company into a WFOE or other FIE requires approval by MOFCOM.
It is our understanding that, to the extent the offshore acquisition vehicle is owned by any PRC residents, delays at the State-level of MOFCOM are already occurring. Moreover, State MOFCOM may begin to take the view that these offshore acquisition structures are for the purpose of making round-trip investments and therefore may examine these transaction more closely. This added scrutiny may occur even where the deal size is below the State-level MOFCOM approval threshold of US$30 million, and despite the fact that the transaction is subject to review by the Local-level MOFCOM. In practice, this could lead to indefinite delays in the approval process and will delay the overall timeline for completion of cross-border investments.
Captive Company Transactions at Risk?
A structure often used by venture capitalists investing in the telecom and internet space is the "captive company structure" (commonly referred to as the "SINA-structure"). We are not aware of any delays with respect to the formation of SINA-structure WFOEs, but this may be due to the fact that a number of well-advised venture funds are using an updated structure which makes the regulatory approval process more certain.2 Moreover, given that most venture capital transactions in China do not exceed the US$30 million threshold, it is likely that these deals are being completed without scrutiny by MOFCOM. This, too, may change if MOFCOM takes a more active role in reviewing smaller transactions involving round-trip investment.
Looking Ahead...
News about this development at MOFCOM is only a few weeks old. At this time, we recommend that investors anticipate delays when making an investment where the offshore SPV has existing PRC resident shareholders.
1 The M&A Regulations are jointly promulgated by The Ministry of Foreign Trade and Economic Cooperation (now known as MOFCOM); the State Administration of Taxation; the State Administration for Industry and Commercial and SAFE.
2 We currently advise all of our venture capital, private equity and international clients to move to hybrid structures and/or an updated SINA-structure to reduce regulatory risks and exposure.
作者：安普若 在 海归商务 发贴, 来自【海归网】 http://www.haiguinet.com
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 国内新闻：商业部严格审查中国居民返程投资 -- 安普若 - (5860 Byte) 2006-4-20 周四, 18:57 (4206 reads) - 这个字的颜色 -- xmen03 - (21 Byte) 2006-4-20 周四, 22:37 (331 reads)
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