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M & A

Foreign Exchange Issues

Equity Acquisitions

If the transaction involves a seller who must be paid in China, the foreign purchaser will have to remit the purchase price into the PRC. In such circumstances, the purchase price will typically be remitted to a special account that the seller establishes for the specific purpose of receiving funds of such nature (called a “capital account”). For the large amounts of such inward remittances that are typical in merger and acquisition transactions, the PRC seller may be required to apply to State Administration of Foreign Exchange (“SAFE”) for approval in order to settle the purchase price and convert the purchase price into RMB. After remittance of the purchase price into the special account and conversion into RMB, the foreign investor will have to carry out special foreign exchange registration for the foreign exchange paid to the seller (or the foreign investor may authorize the seller of the equity to carry out the registration). A registration certificate will be issued. The certificate is proof that the foreign investor has made the payment(s).

Asset Acquisitions

In an asset purchase involving the formation of a new FIE as the acquisition vehicle, the new FIE will first need to be funded. The purchasing FIE will need to use RMB to purchase any assets from a domestic company. This may come from the conversion of part of the initial capital contributions, or from its operational income. In any event, in such a transaction, the payment to the seller itself will typically not trigger specific foreign exchange issues.

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