China revamps M&A regs

Private equity-backed M&A should get a boost from China’s new streamlined rules.

China’s regulators have announced new rules that simplify or remove administrative obstacles for mergers and acquisitions, moves that could have a significant impact on  private equity-backed M&A, sources say.

“[The reformed regulations] are significant because many global private equity funds are working more with Chinese strategic buyers as well as Chinese private equity funds in buying assets outside of China,” said Steven Xiang, corporate partner, private equity, mergers & acquisitions at Weil, Gotshal & Manges in China.

For example, inbound or outbound private equity deals involving Chinese companies have had to enter a queue for approval from the anti-monopoly committee of the Ministry of Commerce (MOFCOM), which typically took months. 

MOFCOM came up with a provision that certain qualified transactions will be deemed simple cases and would be cleared in 30 days, Xiang said. “If that can be implemented, the closing mechanics would be a huge benefit to private equity. A lot of funds have been quite concerned about the long clearing process from the anti-monopoly bureau, so this makes the deal more predictable.”

Another move is an amendment of the company law, which at this point is limited to Chinese companies.

For example, paid-in registered capital has been removed for domestic Chinese companies. “That makes it very close to a common law company registration system such as the one in Hong Kong or anywhere else.”

Regulators are considering similar amended regulations for foreign-invested enterprises, which would remove some of the basic burdens of investing and operating in China, Xiang said.

Taken together, the streamlined rules have the potential to drive private equity-backed M&A, he added.

Buyside private equity-backed M&A in China in 2013 (including real estate) was $8.5 billion across 157 deals, according to Thomson Reuters data. The figure was down from $11.4 billion across 177 deals in 2012.

Private equity still captures only a small percentage of overall China M&A, which reached $262 billion last year across 3,700 deals.