Merger and Acquisition in China for Buy- side Client
Long gone are the limitations on foreign companies wishing to invest in China. It was virtually impossible to purchase operating Chinese businesses and to restructure their existing investments in China through mergers, spin-offs and holding companies years ago. Nowadays Chinese laws have been relaxed which in turn has created a rapid increase into the number of merger and acquisitions now taking place. At AfsSec we are here to help you take the difficulties out of the merger and acquisition process.
On behalf of the buyer, AfsSec is able to assist in both offshore and onshore transactions:
- Offshore Transactions
- For foreign investors to avoid China’s burdensome regulatory environment when transferring or acquiring Chinese business assets is to keep the entire transaction offshore. As the Chinese Government generally does not purport to regulate such offshore transactions and requires no Government approvals offshore transactions is the most effective way. This only can be done if the investment in China is held through an offshore company such as a Hong Kong holding company, a second offshore company can simply purchase the shares of the first company under the laws of the applicable foreign jurisdiction.
- Onshore-offshore Transactions
- Keeping the deal entirely offshore is sometimes impossible, even when the purchases is another foreign company. Chinese Government approvals and the various regulatory restrictions on foreign investments in China will apply when the transaction involves the transfer of an equity interest or assets in China or from offshore investments into China.
AfsSec helps solve the practical issues that arise in the Chinese merger and acquisition market including:
- Due diligence
Chinese company’s business such as legal title to land-use rights, the existence of pending litigations, and priority security interests over assets, are often either unavailable or unreliable. AfsSec searches this information ensuring that everything is correct for you. Conducting satisfactory due diligence is difficult in China as corporate accounting is also frequently lax by foreign standard and companies are accustomed to rigid secrecy policies and may be uncooperative disclosing their record. AfsSec are a comprehensive representation for the foreign investor ensuring warranties, indemnities for breach and security for those indemnities are in place.
Debt financing for M&A transactions is complicated and involves numerous obstacles. As procedures for pledging equity interests or registering security interests in assets are not fully developed, banks are reluctant to loan funds for acquisitions. At AfsSec we have strong relationships making it easy for you to finance your growth strategy.
General taxes in China include: profits derived from the sale of an investment in an Foreign Investment Enterprise or Chinese domestic company are taxable income; a withholding tax of 10% applies if the seller is an offshore company There are other complex tax and accounting issues which could come up, some of which the circular addresses and others of which remain to be elaborated upon. AfsSec guides you through what taxes there are in your transactions.
Approval from an examination and approval authority (EAA) is required for most merger and acquisition transactions in China. The EAA will not advise the parties when approval will be granted and will not make its approval conditional on futures events such as payment of the purchase price. At AFS Capital we will fully inform you on the finally procedures required for the transaction to be a success. We ensure you get the final form of an “approval certificate” which shows transfers ownership.
When your with AfsSec we guarantee your Chinese transaction is complete on time ensuring your growth strategy takes place shaping the future of your business.