China considers share swapping in foreign M&As
(Xinhua)
Updated: 2006-08-09 15:35
The Chinese government is considering a law that will allow share-swapping
between foreign and Chinese companies undertaking mergers and acquisitions
(M&As).
The draft regulation on consolidations between foreign and
domestic companies demonstrated the government's attempt to strengthen
supervision of mergers and acquisitions, reported the China Securities
Journal.
The Ministry of Commerce first drafted a regulation in 2004 and
revised it this year, aiming to give detailed guidance and make better use of
foreign investment.
The fourth chapter confirms stock ownership
exchanges and cash are allowable as payment for overseas-held stakes in domestic
companies.
Li Dacheng, a lawyer with the DLA Piper Law Office, said it
was the first time the country had clarified the regulation concerning foreign
investors and permitted share swapping.
Other experts regarded the
regulation as bringing China into line with the international market.
Previously, the Chinese market gave priority to cash payments, so the regulation
would guide foreign investors, said Liu Xiaodan, manager of the United
Securities Corporation mergers and financing department.
Sun Xiaohua, an
expert with the Ministry of Commerce, said the 2004draft was a good framework,
but failed to mention foreign mergers and acquisitions in sectors that could
jeopardize China's industrial and economic integrity.
The first draft
required the Ministry of Commerce approval for bids by foreign investors to
control companies that dominated sectors of Chinese industry, owned famous
brands or employed more than 2,000 people, or when the move could affect China's
economic security.
Regulators had been pressured after controversy
involving the U.S.-based Carlyle Group's agreement to pay 375 million U.S.
dollars to purchase a subsidiary of the Xugong Group, China's construction and
machinery giant.
Under the agreement signed by the two parties last
October, Xugong Group was to sell 85 percent of its shareholding in Xugong Group
Construction Machinery Co. to Carlyle. The Chinese firm, with annual revenues of
17 billion yuan (2.1 billion dollars), controls more than 50 percent of China's
crane and road paving equipment market.
Sources close to the deal said
the ministry had stalled the takeover for fear that it might jeopardize China's
machinery industry.
Foreign acquisitions of leading companies were "a
new problem China has to face, while advancing economic reform and opening up",
said Song Heping, deputy director of the ministry's Industrial Damage
Investigation Department, last month.
The ministry was trying to balance
protection of indigenous industries with the investment enthusiasm of foreign
companies, Song said.
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