Sim­pler rules for M&A ‘pos­i­tive’

China Daily (Canada) - - FRONT PAGE - By ZHENG YANGPENG zhengyang­peng@chi­

The na­tion’s sim­pli­fied ap­proval sys­tem for out­bound di­rect in­vest­ment, which has shifted from prior ap­proval to­ward a reg­is­tra­tion and fil­ing frame­work, is a pos­i­tive step, but cor­po­ra­tions need clar­i­fi­ca­tion about the new sys­tem, a part­ner at Ernst & Young Global Ltd told China Daily.

“Our clients wel­come the move as a pos­i­tive devel­op­ment to boost out­bound in­vest­ment, but the over­all pro­ce­dures and spe­cific fil­ing re­quire­ments need fur­ther clar­i­fi­ca­tion,” said Yew-Poh Mak, who spe­cial­izes in trans­ac­tion ad­vi­sory ser­vices in China.

Last year, China made a ma­jor leap in its ODI reg­u­la­tory frame­work by is­su­ing two doc­u­ments to sim­plify the for­merly oner­ous pro­ce­dures. The doc­u­ments nar­rowed the scope of in­vest­ments that re­quired case-by-case ap­provals. Projects that re­quire ap­proval by the Na­tional Devel­op­ment and Re­form Com­mis­sion, the top eco­nomic plan­ner, are now limited to those with an in­vest­ment of more than $1 bil­lion. Projects in­volv­ing an in­vest­ment be­tween $300 mil­lion and $1 bil­lion that do not in­volve “sen­si­tive” sec­tors or re­gions only need to be reg­is­tered with the NDRC. Smaller projects only need to be reg­is­tered at the pro­vin­cial level.

Pre­vi­ous rules re­quired case-by­case ap­proval for any in­vest­ment ex­ceed­ing $100 mil­lion in any sec­tor ex­cept en­ergy.

Three reg­u­la­tors are in­volved in the ap­proval or reg­is­tra­tion of ODI: The NDRC, the Com­merce Min­istry and the State Ad­min­is­tra­tion of For­eign Ex­change.

“In many cases, as­sets in for­eign coun­tries are sold through a bid­ding process that re­quires bid­ders to make de­ci­sions in a short time. The ap­proval sys­tem put Chi­nese bid­ders at great dis­ad­van­tage as it caused un­cer­tainty,” Mak said. So the reg­is­tra­tion sys­tem is a great ad­vance, he said, but it will take time to have the new sys­tem im­ple­mented, es­pe­cially at the lo­cal level.

Mak made the com­ment at an event to mark the re­lease of an E&Y re­port on China’s ODI. The re­port said that from 2011 to 2014, ODI rose at a com­pound an­nual growth rate of 16 per­cent. In 2014, ODI reached $116 bil­lion, which it said was al­most equal to in­bound for­eign di­rect in­vest­ment.

The re­port noted that the share of merger and ac­qui­si­tion trans­ac­tions in the en­ergy and min­ing sec­tors fell to 16 per­cent of the to­tal in 2014 from 61 per­cent in 2010. For the tech­nol­ogy, me­dia and telecom­mu­ni­ca­tions sec­tor, the pro­por­tion in­creased from 6 per­cent to 21 per­cent. Agri­cul­ture, fi­nance and real es­tate were also pop­u­larM&Asec­tors.

An­a­lysts at E&Y said that Chi­nese in­vestors are be­com­ing in­creas­ingly so­phis­ti­cated. Mak said that in the past, over­seasM&A deals by some Chi­nese com­pa­nies had been ex­e­cuted by their in­ter­na­tional busi­ness de­part­ments, which are sup­posed to op­er­ate ex­ist­ing over­seas busi­nesses but might not haveM&Aex­per­tise.

“Now, most com­pa­nies have set up an over­seas M&A depart­ment, which re­cruits ex­pe­ri­enced pro­fes­sional from in­vest­ment banks or con­sul­tan­cies,” he said.

He said that many his clients now told him they are not only look­ing for po­ten­tial M&A tar­gets but also over­seas head­hunters, be­cause they re­al­ized how im­por­tant lo­cal man­agers would be for their post-merger in­te­gra­tion and op­er­a­tion.

The re­port also noted that the ac­cel­er­ated im­ple­men­ta­tion of the “Belt and Road ini­tia­tive” will bring “a newwave” ofODIin in­fra­struc­ture, en­ergy and ad­vanced man­u­fac­tur­ing.

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