Daily Management Review

China's Overseas M&A Push to be Boosted by Simpler Merger Code


China's Overseas M&A Push to be Boosted by Simpler Merger Code
In a move likely to further boost record overseas acquisitions by Chinese companies, China is planning to allow Chinese companies to vie for the same target and to remove the need for State Council approval for large, sensitive outbound deals.
The draft rules aimed at both speeding up approvals and allowing head-to-head competition between Chinese bidders were published by China's chief outbound investment regulator, the National Development and Reform Commission (NDRC).
There would no longer be need for approval from the State Council, or to provide proof of financing for Chinese companies seeking to carry out a deal of $2 billion or more in sectors or countries that China deems sensitive under the proposed rule changes.
Chaired by Premier Li Keqiang, the State Council, China's cabinet, includes the heads of major departments and agencies. Companies however would still require NDRC and the Ministry of Commerce, or MOFCOM, China's other investment regulator’s clearance for sensitive deals.
There was no response from the State Council, NDRC and MOFCOM related to the reports of the proposed changes in rules.
In a move that should strip out an extra layer of red tape faced by companies based in far-flung provinces there has also been a proposal by NDRC that would seek to reduce the role of its regional bureaus in approving regular deals.
Following Anbang Insurance Group Co's decision to drop a $14 billion bid for Starwood Hotels, the draft was published online in early April, just as China's outbound push seemed to have stalled. But the changes have not been widely reported.
The NDRC's discretionary power to operate an informal policy of giving one Chinese company the exclusive right to bid for an overseas deal has also been proposed to be removed in the new proposals.
The competition among Chinese bidders at the expense of the state has been criticized by market participants and this policy was aimed at preventing this.
"The new proposal is very encouraging, as it shows the NDRC is moving away from this regime and more toward a market-driven process," said Xiong Jin, international partner at law firm King & Wood Mallesons in Beijing.
The new rules are expected to come into force soon after the consultation closes on May 13.
After it began an overhaul of the opaque and complex regime in 2014 in a bid to spur Chinese companies to buy up strategic assets in sectors including food and technology, the NDRC proposal is the latest move by the Chinese government to relax its outbound investment rules.
According to Thomson Reuters data, Chinese buyers delivered a record $104 billion of outbound deals last year, nearly double that of 2014 which was helped by the overhaul that triggered an M&A frenzy. The tally so far this year is $97 billion.
A filing-based registration system for outbound investments was moved by Beijing in 2014 in a landmark change.
That meant that only a registration with the NDRC and MOFCOM, with filing confirmations typically issued in around seven working days and a vast majority of China overseas M&A no longer required approvals.

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