As an indirect acquisition conducted offshore, PRC authorities generally have no jurisdiction over the transaction and the transaction should not require PRC approval, except for antitrust review procedures. Pursuant to the PRC M&A Regulations, the foreign purchaser in an offshore acquisition is required to submit the acquisition plan to the Ministry of Commerce ("MOFCOM") if one of the following applies:
MOFCOM reviews applications and approves or rejects foreign acquisitions based on whether such acquisitions will result in an over-concentration in the domestic market, harm legitimate competition, and/or damage consumers' interest.
The PRC antitrust provisions are broadly worded and do not provide clear guidance on the determination of the triggering events for review and as to qualifications or exemptions. There are also no detailed implementing rules available to clarify these crucial questions. At present, the anti-trust review for offshore acquisitions appears to be in form rather than in substance.
Under current PRC law, transactions involving a transfer of the registered capital of an existing FIE or the conversion of a domestic state-owned enterprise ("SOE") into an FIE via a direct equity transfer would require approval and registration, similar to the situation where a new FIE is formed. MOFCOM and/or its local counterparts have the power to examine and approve transactions involving foreign investments in domestic companies and FIEs, and would in most cases be the relevant approval authority for this purpose (unless otherwise specified by laws or administrative regulations, or where the target companies are in certain special industries). The State Administration for Industry and Commerce ("SAIC") and its local branches ("AICs") are responsible for the administration of the registration procedures once the proposed transaction has been approved by the appropriate approval authority.
The relevant application should be filed with the original approval authority of the target FIE. If the target is currently not an FIE, then the application should be lodged with the appropriate approval authority for the establishment of a new FIE with the appropriate amount of investment. In general, if the target is not an existing FIE, the parties are required to have the value of the equity appraised before transfer. Prices considerably lower than the appraisal result will not be permitted.
The antitrust approval process for direct equity acquisitions is similar in principle to that for indirect equity acquisitions. The merger control thresholds are as follows:
If a foreign investor wishes to acquire assets in the PRC, rather than equity, it must first establish a commercial presence in the PRC. Therefore, the normal approvals for establishment of an FIE may be needed prior to proceeding with the asset acquisition.
Apart from any approvals for establishment of a new entity, acquisitions or transfers of certain assets will be subject to additional governmental approvals. For example:
If any of the corporate constitutional documents or the principal company particulars of either party involved in the asset acquisition need to be amended as a result of the transaction, approvals from the relevant governmental authorities and registration of such amendments with the SAIC may be required. In addition, there may be other governmental title registration requirements associated with certain types of assets such as real estate or vehicles, which need to be updated.