Advisory Board

  • Cai Hongbin
  • Peking University Guanghua School of Management
  • Peter Clarke
  • Barry Diller
  • IAC/InterActiveCorp
  • Fu Chengyu
  • China National Petrochemical Corporation (Sinopec Group)
  • Richard J. Gnodde
  • Goldman Sachs International
  • Lodewijk Hijmans van den Bergh
  • De Brauw Blackstone Westbroek N.V.
  • Jiang Jianqing
  • Industrial and Commercial Bank of China, Ltd. (ICBC)
  • Handel Lee
  • King & Wood Mallesons
  • Richard Li
  • PCCW Limited
  • Pacific Century Group
  • Liew Mun Leong
  • Changi Airport Group
  • Martin Lipton
  • New York University
  • Wachtell, Lipton, Rosen & Katz
  • Liu Mingkang
  • China Banking Regulatory Commission (CBRC)
  • Dinesh C. Paliwal
  • Harman International Industries
  • Leon Pasternak
  • BCC Partners
  • Tim Payne
  • Brunswick Group
  • Joseph R. Perella
  • Perella Weinberg Partners
  • Baron David de Rothschild
  • N M Rothschild & Sons Limited
  • Dilhan Pillay Sandrasegara
  • Temasek International Pte. Ltd.
  • Shao Ning
  • State-owned Assets Supervision and Administration Commission of the State Council of China (SASAC)
  • John W. Snow
  • Cerberus Capital Management, L.P.
  • Former U.S. Secretary of Treasury
  • Bharat Vasani
  • Tata Group
  • Wang Junfeng
  • King & Wood Mallesons
  • Wang Kejin
  • China Banking Regulatory Commission (CBRC)
  • Wei Jiafu
  • Kazakhstan Potash Corporation Limited
  • Yang Chao
  • China Life Insurance Co. Ltd.
  • Zhu Min
  • International Monetary Fund

Legal Roundtable

  • Dimitry Afanasiev
  • Egorov Puginsky Afanasiev and Partners (Moscow)
  • William T. Allen
  • NYU Stern School of Business
  • Wachtell, Lipton, Rosen & Katz (New York)
  • Johan Aalto
  • Hannes Snellman Attorneys Ltd (Finland)
  • Nigel P. G. Boardman
  • Slaughter and May (London)
  • Willem J.L. Calkoen
  • NautaDutilh N.V. (Rotterdam)
  • Peter Callens
  • Loyens & Loeff (Brussels)
  • Bertrand Cardi
  • Darrois Villey Maillot & Brochier (Paris)
  • Santiago Carregal
  • Marval, O’Farrell & Mairal (Buenos Aires)
  • Martín Carrizosa
  • Philippi Prietocarrizosa & Uría (Bogotá)
  • Carlos G. Cordero G.
  • Aleman, Cordero, Galindo & Lee (Panama)
  • Ewen Crouch
  • Allens (Sydney)
  • Adam O. Emmerich
  • Wachtell, Lipton, Rosen & Katz (New York)
  • Rachel Eng
  • WongPartnership (Singapore)
  • Sergio Erede
  • BonelliErede (Milan)
  • Kenichi Fujinawa
  • Nagashima Ohno & Tsunematsu (Tokyo)
  • Manuel Galicia Romero
  • Galicia Abogados (Mexico City)
  • Danny Gilbert
  • Gilbert + Tobin (Sydney)
  • Vladimíra Glatzová
  • Glatzová & Co. (Prague)
  • Juan Miguel Goenechea
  • Uría Menéndez (Madrid)
  • Andrey A. Goltsblat
  • Goltsblat BLP (Moscow)
  • Juan Francisco Gutiérrez I.
  • Philippi Prietocarrizosa & Uría (Santiago)
  • Fang He
  • Jun He Law Offices (Beijing)
  • Christian Herbst
  • Schönherr (Vienna)
  • Lodewijk Hijmans van den Bergh
  • De Brauw Blackstone Westbroek N.V. (Amsterdam)
  • Hein Hooghoudt
  • NautaDutilh N.V. (Amsterdam)
  • Sameer Huda
  • Hadef & Partners (Dubai)
  • Masakazu Iwakura
  • TMI Associates (Tokyo)
  • Christof Jäckle
  • Hengeler Mueller (Frankfurt)
  • Michael Mervyn Katz
  • Edward Nathan Sonnenbergs (Johannesburg)
  • Handel Lee
  • King & Wood Mallesons (Beijing)
  • Martin Lipton
  • Wachtell, Lipton, Rosen & Katz (New York)
  • Alain Maillot
  • Darrois Villey Maillot Brochier (Paris)
  • Antônio Corrêa Meyer
  • Machado, Meyer, Sendacz e Opice (São Paulo)
  • Sergio Michelsen Jaramillo
  • Brigard & Urrutia (Bogotá)
  • Zia Mody
  • AZB & Partners (Mumbai)
  • Christopher Murray
  • Osler (Toronto)
  • Francisco Antunes Maciel Müssnich
  • Barbosa, Müssnich & Aragão (Rio de Janeiro)
  • I. Berl Nadler
  • Davies Ward Phillips & Vineberg LLP (Toronto)
  • Umberto Nicodano
  • BonelliErede (Milan)
  • Brian O'Gorman
  • Arthur Cox (Dublin)
  • Robin Panovka
  • Wachtell, Lipton, Rosen & Katz (New York)
  • Sang-Yeol Park
  • Park & Partners (Seoul)
  • José Antonio Payet Puccio
  • Payet Rey Cauvi (Lima)
  • Kees Peijster
  • COFRA Holding AG (Zug)
  • Juan Martín Perrotto
  • Uría & Menéndez (Madrid/Beijing)
  • Philip Podzebenko
  • Herbert Smith Freehills (Sydney)
  • Geert Potjewijd
  • De Brauw Blackstone Westbroek (Amsterdam/Beijing)
  • Qi Adam Li
  • Jun He Law Offices (Shanghai)
  • Biörn Riese
  • Jurie Advokat AB (Sweden)
  • Mark Rigotti
  • Herbert Smith Freehills (Sydney)
  • Rafael Robles Miaja
  • Robles Miaja (Mexico City)
  • Alberto Saravalle
  • BonelliErede (Milan)
  • Maximilian Schiessl
  • Hengeler Mueller (Düsseldorf)
  • Cyril S. Shroff
  • Cyril Amarchand Mangaldas (Mumbai)
  • Shardul S. Shroff
  • Shardul Amarchand Mangaldas & Co.(New Delhi)
  • Klaus Søgaard
  • Gorrissen Federspiel (Denmark)
  • Ezekiel Solomon
  • Allens (Sydney)
  • Emanuel P. Strehle
  • Hengeler Mueller (Munich)
  • David E. Tadmor
  • Tadmor & Co. (Tel Aviv)
  • Kevin J. Thomson
  • Barrick Gold Corporation (Toronto)
  • Yu Wakae
  • Nagashima Ohno & Tsunematsu (Tokyo)
  • Wang Junfeng
  • King & Wood Mallesons (Beijing)
  • Tomasz Wardynski
  • Wardynski & Partners (Warsaw)
  • Rolf Watter
  • Bär & Karrer AG (Zürich)
  • Xiao Wei
  • Jun He Law Offices (Beijing)
  • Xu Ping
  • King & Wood Mallesons (Beijing)
  • Shuji Yanase
  • OK Corporation (Tokyo)
  • Alvin Yeo
  • WongPartnership LLP (Singapore)

Founding Directors

  • William T. Allen
  • NYU Stern School of Business
  • Wachtell, Lipton, Rosen & Katz
  • Nigel P.G. Boardman
  • Slaughter and May
  • Cai Hongbin
  • Peking University Guanghua School of Management
  • Adam O. Emmerich
  • Wachtell, Lipton, Rosen & Katz
  • Robin Panovka
  • Wachtell, Lipton, Rosen & Katz
  • Peter Williamson
  • Cambridge Judge Business School
  • Franny Yao
  • Ernst & Young

Monthly Archives: August 2012

CHINESE UPDATE – Chinese Antitrust Regulators Vow to Increase Transparency

Editors’ Note:  Susan Ning, a member of XBMA’s Legal Roundtable, contributed this paper.  Ms. Ning heads King & Wood Mallesons’ International Trade and Antitrust and Competition Group and is widely recognized as one of the leading experts in the field, with many years of experience working with MOFCOM to secure merger clearance.

Highlights: 

  • China’s two governmental regulators for anti-monopoly conducts in China announced that they will increase the transparency of their enforcement actions under the Anti-Monopoly Laws.
  • One head of SAIC discussed its future goals: (1) to investigate those typical antitrust cases having serious impact on market competition; (2) to investigate monopoly conducts of public utility enterprises such as electricity, water and gas suppliers; (3) to break the industrial monopolies and regional blockades; and (4) to push forward the drafting of the guidance on antitrust enforcement involving intellectual property rights.
  • So far the limited published information and lack of detailed provisions on procedural and substantive matters together has resulted in the distrust of the public.

Main Article:

On the International Symposium on Controversial Issues regarding Chinese Anti-Monopoly Laws (“AML”) Enforcement held in Hangzhou this month, both the National Development and Reform Commission (“NDRC”) and the State Administration for Industry and Commerce (“SAIC”) announced that they will increase the transparency of their enforcement actions under the AML.

NDRC and SAIC are the regulators for anti-monopoly conducts in China. The powers are divided between the two authorities in the way that NDRC is responsible for price-related monopoly conducts, and SAIC is responsible for non-price related monopoly conducts.

NDRC Promised to disclose all the AML cases in due course.

Ms.Li Qing (李青), Deputy Director of the Price Supervision and Anti-monopoly Bureau of NDRC, admitted on the symposium that NDRC was not able to disclose all their antitrust investigations due to reasons such as existence of confidentiality arrangement. However, Ms. Li promised that NDRC will release information about all the AML cases to the public in due course.

Ms. Li disclosed that among those cases which NDRC has investigated in or decided on, most of them are about price monopoly agreements, some others involve abuse of dominance, and only a small amount relates to administrative monopoly.

According to Ms. Li, anti-monopoly cases have been rising steadily in the recent years. No matter whether the complaint is from business operators or from consumers, NDRC will take it seriously and launch investigation in each and every one of them as long as there is a legal basis under the AML regime.

SAIC will improve the system to publish its AML investigations.

On the same symposium, Mr. Yang Jie (杨洁), a division head of the Anti-Monopoly and Anti-Unfair Competition Enforcement Bureau of SAIC, made a brief introduction of SAIC’s enforcement efforts. According to Mr. Yang, SAIC has authorized provincial AICs of Jiangsu, Jiangxi, Chongqing, Zhejiang, Liaoning, etc., to investigate in 16 AML cases (including 15 cartel cases and 1 case of abuse of dominance), out of which 4 have been decided.

The future focus of SAIC, as indicated by Mr. Yang, includes four prongs: (1) to investigate those typical antitrust cases having serious impact on market competition; (2) to investigate monopoly conducts of public utility enterprises such as electricity, water and gas suppliers; (3) to break the industrial monopolies and regional blockades; and (4) to push forward the drafting of the guidance on antitrust enforcement involving intellectual property rights.

Similar to NDRC’s commitment, Mr. Yang announced that SAIC will introduce rules aiming for greater transparency, and the rules will bring clarifications on when, how and through what media to publish the AML cases. In line with this announcement, Mr. Yang disclosed a former action against operators in the building materials industry of Liaoning province, where Liaoning AIC imposed a total of RMB 15 million fines on an industrial association and 13 companies.

Comments

Currently, among the three AML enforcers, only the Ministry of Commerce (“MOFCOM”), which is responsible for merger review, publishes all its decisions of prohibition or conditional approval. NDRC and SAIC, on the other hand, is inclined to stay away from the public spotlight. The limited published information and lack of detailed provisions on procedural and substantive matters together make the enforcement actions of NDRC and SAIC cloaked in mystery. Some basic aspects of the investigations, such as what procedures to follow in order to apply for leniency, when the business operator under investigation will be notified, how illegal proceedings and fines are calculated and determined, etc., have not been clarified. Moreover, the lack of transparency has resulted in the distrust of the public. For example, many people raised queries on NDRC’s decision on settling with China Telecom and China Unicom instead of imposing fines on the two large state-own companies.

Without a doubt, NDRC and SAIC have taken welcome steps towards a more open system. However, this is only a start. Detailed provisions on the system need to be discussed and provided. For example, will the authorities publish all their formal decisions? Will they disclose information about an on-going investigation? Can market players or consumers proactively request the authorities to make disclosure? We will pay a close attention to any further information in this regard.

The views expressed herein are solely those of the author and have not been endorsed, confirmed, or approved by XBMA or any of the editors of XBMA Forum, nor by XBMA’s founders, members, contributors, academic partners, advisory board members, or others. No inference to the contrary should be drawn.

SINGAPOREAN UPDATE – Competition Commission of Singapore Amends Merger Guidelines

Editors’ Note:   This paper was contributed by Rachel Eng, Managing Partner of WongPartnership and a member of XBMA’s Legal Roundtable.  The author is Ameera Ashraf, head of WongPartnership’s Competition & Regulatory Practice.

Highlights:

  • The Competition Commission of Singapore (“CCS”) has published its revised Guidelines on Merger Procedures 2012 and they came into effect on 1 July 2012.
  • The changes provide further guidance to parties on determining whether a merger is likely to result in a substantial lessening of competition.
  • They also set out a new procedure for obtaining the CCS’s confidential advice on the proposed merger, and also explain the CCS’s approach to market intelligence and how confidential information provided to it will be treated.

Main Article:

The Competition Commission of Singapore (“CCS”) has published its revised Guidelines on Merger Procedures 2012 (“2012 Guidelines”). They came into effect on 1 July 2012. The CCS first issued a consultation paper on 20 February 2012 (“Consultation Paper”) seeking feedback on proposed changes to the Guidelines on Merger Procedures. Following the feedback, the CCS modified some of its proposed changes. However, the main changes proposed in the consultation paper remain substantially the same. The changes effected by the 2012 Guidelines are discussed below.

Self-Assessment of a SLC

Given that the merger notification regime in Singapore is a voluntary one, parties to a proposed merger have to determine whether there is a risk of the merger being prohibited under section 54 of the Competition Act for causing a substantial lessening of competition (“SLC”) in the relevant market. In this regard, the 2012 Guidelines provides further guidance to smaller companies by stating that a merger is unlikely to be investigated by the CCS if:

  • It involves companies with turnover in Singapore of less than S$5 million; and
  • The combined worldwide turnover of the merger parties is less than S$50 million.

This guidance differs slightly from that proposed in the Consultation Paper in the following ways:

  • The CCS has suggested that, for the purpose of a self-assessment as to whether the merger is one that results in a SLC, parties use a rule-of-thumb based on their respective shares of supply. This suggestion has not been incorporated into the 2012 Guidelines which retain the market share test for self-assessment.
  • Also as regards parties’ self-assessment of their merger, the CCS had proposed stating that a merger of small companies would ordinarily not result in a SLC. It had further proposed that a company would be considered small if, in the financial year preceding the transaction, it had a turnover in Singapore below S$5 million, and a turnover worldwide below S$10 million. The 2012 Guidelines retain the threshold of a S$5 million annual turnover in Singapore. However, the worldwide turnover threshold has been broadened: as mentioned above, it now covers the combined worldwide turnover in the financial year preceding the transaction of all the parties, which must be below S$50 million.

Obtaining a Confidential Opinion from the CCS

A new procedure for obtaining a confidential opinion from the CCS on the parties’ proposed merger is set out. In short, merger parties who are concerned with preserving the confidentiality of a transaction may approach the CCS for confidential advice on whether the proposed merger is likely to raise competition concerns in Singapore. They will be expected to provide information on the merger that is similar to what is required in the Form M1 (the prescribed form for a standard Phase 1 merger notification). The CCS will assess the merger internally without making third party enquiries and at the end of the process, the CCS will issue a letter stating whether it considers that the merger is likely to raise competition concerns in Singapore.

In response to feedback as to the new procedure, the 2012 Guidelines now incorporate the following assurances:

  • The CCS will not disclose to other organisations or competition authorities in other jurisdictions the information provided by the party requesting confidential advice, nor the fact that confidential advice has been requested, without first obtaining the relevant waivers.
  • Where a party has requested confidential advice, it must meet certain conditions stipulated in the 2012 Guidelines. The CCS has included an assurance that confidential information provided to it for this purpose will be returned to the party making the request if the CCS decides that the conditions for giving confidential advice have not been met.

CCS’s Assessment of a Merger

The 2012 Guidelines provide guidance on what constitutes confidential information for the purposes of making confidentiality claims when merger parties provide information to the CCS for its assessment of the merger. The CCS cautions against overly wide or blanket confidentiality claims and also lists several examples of information which would not be considered confidential, such as:

  • Information which relates to the business of the merger parties but is not commercially sensitive in the sense that it would cause harm to the business if disclosed;
  • The merger parties’ views of how the competitive effects of the merger could be analysed; and
  • Information that is general knowledge within the industry or is likely to be readily ascertainable by any reasonably diligent market participant or trade analyst.

At the end of a Phase 1 review of a merger, the CCS case team may notify the merger parties of any issues giving rise to competition concerns in order to allow the merger parties to address these issues by giving the CCS appropriate commitments. Following feedback, the 2012 Guidelines clarify that, for the purposes of the Singapore Code for Takeovers and Mergers, such a notification does not constitute a decision to proceed to a Phase 2 review. For such merger situations, the CCS will issue a separate letter stating its decision to proceed to a Phase 2 review.

Market Intelligence and Complaints from Third Parties

Finally, the 2012 Guidelines clarify the CCS’s approach to market intelligence and the role of complainants and third parties in the context of merger control. The 2012 Guidelines make it clear that the CCS keeps markets under review to ascertain what mergers or acquisitions are taking place, and will approach merger parties and other third parties to gather further information where it identifies transactions that may potentially raise competition concerns.  The CCS has also indicated that it may publish a notice on its website indicating that it is considering whether or not a completed or anticipated merger that has not been notified to it may raise competition concerns.

The views expressed herein are solely those of the author and have not been endorsed, confirmed, or approved by XBMA or any of the editors of XBMA Forum, nor by XBMA’s founders, members, contributors, academic partners, advisory board members, or others. No inference to the contrary should be drawn.

PANAMA UPDATE – New Legislation Creates Panama’s Sovereign Wealth Fund

Editors’ Note: Carlos G. Cordero G. is a senior partner at Alemán, Cordero, Galindo & Lee and a member of XBMA’s Legal Roundtable.  Alemán, Cordero, Galindo & Lee is one of Panama’s leading law firms in the offshore area as well as in representing large corporations doing business in Panama.  Mr. Cordero concentrates on Commercial Law, Banking and Administrative Law, with specialization in mergers and acquisitions, government contracts and commercial arbitration.

Executive Summary:

The product of an extensive canvasing of sovereign wealth funds from around the world and a review of their respective best practices, Panama’s new National Savings Fund provides the government with a sophisticated and transparent investment vehicle to manage the country’s surpluses.

Main Article:

Riding off of an unprecedented period of prosperity and growth, the Panamanian government recently created a National Savings Fund (the “Fund”) as a forward-looking initiative aimed at safeguarding the country against future negative shocks (e.g., natural disasters, tail risk events, economic recessions, etc.).[1]  The product of an extensive canvasing of sovereign wealth funds from around the world and a review of their respective best practices, the Fund Law seeks to provide the Panamanian government with a sophisticated and transparent investment vehicle to manage the country’s surpluses.

Mandate

The Fund Law establishes the Fund’s overarching mandate, which is divided into four central directives.  The first directive requires the Fund to provide the country with a mechanism to accumulate and preserve its long-term savings.  Second, in addition to being a savings fund, the Fund is required to function as a stabilization fund, capable of deploying capital to mitigate any major negative shocks.  The third directive requires the Fund to serve as a “lender of last resort” during times of crisis and/or economic recession.  The final directive requires the Fund to assist in the management of budgetary deficits.

Assets under Management (“AUM”)

The Fund will receive its initial AUM from the government’s existing “Development Fund,” which is a trust fund that was created pursuant to Law 20 of 1995.  Subsequently, the AUM would increase from contributions received from the following sources of capital: (i) any funds which by law are assigned to the Fund; (ii) any private/public donations, grants and/or bequests; and (iii) the Rule of Accumulation (as defined herein).

The “Rule of Accumulation” requires that any and all monies received by Panama’s National Treasury – from distributions from the Panama Canal Authority (“ACP”) – in excess of the equivalent of 3.5% of the country’s nominal GDP must be deposited into the Fund.  By way of background, the ACP contributes to the National Treasury a sizable percentage of its profits (i.e., pursuant to a disbursement that is analogous to a yearly dividend payment).  In the event the ACP’s yearly contribution to the National Treasury is larger than 3.5% of nominal GDP, the excess would be diverted to the Fund.

The Rule of Accumulation will come into force in 2015.  The hurdle will initially be set at 3.5% of nominal GDP for any given year.  It may be revised once every five years beginning in 2020.  However, in order for it to be effective, the revised Rule of Accumulation must be approved at the Cabinet level as well as by the plenary session of the National Assembly.

Investment Guidelines/Investment Policy

The Fund Law establishes strict investment parameters that must be complied with during the preparation of the investment guidelines and subsequently the investment policy.   The central tenet is that the Fund may only invest in foreign issuers and/or securities.  A very limited carve-out was created for public debt instruments issued by the Panamanian government (i.e., government bonds).[2]   This limited carve-out comes into force beginning in 2015.  However, aside from this exception, the Fund must pursue a global (ex-Panama) investment strategy.

The Ministry of Economy and Finance (“MEF”) is charged with the responsibility of preparing the Fund’s investment guidelines.  These guidelines flesh out the government’s investment objectives and provide the Fund’s Board of Directors (the “BoD”) with a clear set of parameters for developing the more comprehensive investment policy.  The investment guidelines will define, among other things, specific performance benchmarks, minimum credit rating requirements for investments, asset allocation requirements, and other such investment parameters.

The BoD is charged with the responsibility of preparing the Fund’s investment policy.  This comprehensive policy sets out detailed instructions regarding the investment of the AUM.  Throughout this process, the BoD is assisted by an in-house financial advisory team known as the Technical Secretariat.  Once the investment policy has been finalized, the BoD remits it to the National Bank of Panama (“BNP”), which is responsible for executing the investment policy and managing the AUM.

Transparency

In response to a common critique of other sovereign wealth funds, the Fund Law incorporates very stringent transparency requirements to ensure that the Fund’s year over year performance is a matter of public record.   Accountability would be achieved through a combination of periodic public disclosures and robust internal controls.

The BoD is required to prepare an annual report of the Fund’s performance and operations by no later than March 31st of each year.  The BoD must present this annual report to MEF and to an independent supervisory committee consisting of members of civil society.  A copy of the BoD’s annual report must also be presented to the Economy and Finance Commission of the National Assembly.

After this annual report has been vetted, MEF and the BoD must in turn prepare a detailed presentation of the Fund’s performance and operations, which must include the Fund’s audited consolidated annual financial statements (including the external auditor’s opinion letter).   The Minister of MEF and the President of the BoD must appear before the plenary session of the National Assembly to give said presentation by no later than June 30th of each year.

Additional public disclosures are required to be made by the BNP and the Technical Secretariat.  The BNP will publish the Fund’s audited consolidated annual financial statements, which must be audited by an external auditor.  In turn, the Technical Secretariat will divulge information through the Fund’s website regarding the performance of the Fund’s portfolio, the Fund’s annual budget, as well as on material decisions taken by the BoD.

The views expressed herein are solely those of the author and have not been endorsed, confirmed, or approved by XBMA or any of the editors of XBMA Forum, nor by XBMA’s founders, members, contributors, academic partners, advisory board members, or others. No inference to the contrary should be drawn.

[1] Created pursuant to Law 38 of 2012 (as amended, the “Fund Law”), which was enacted by the National Assembly (i.e., Panama’s legislative branch).

[2] The Fund may invest up to 10% of its AUM in buying Panamanian government bonds.

CHINESE/AUSTRALIAN UPDATE – China-Australia Currency Agreement and RMB Internationalisation

Editors’ Note:  This report was authored by David Wenger, Partner, Senior Associate Wayne Wang and PRC Consultant Scarlet Feng of Allens.  It was contributed by Ewen Crouch, Chairman of Partners at Allens and a member of XBMA’s Legal Roundtable. Mr. Crouch is one of Australia’s leading M&A lawyers, having acted in recent years on some of the country’s most significant transactions.

Executive Summary:  Recently, as part of its foreign exchange reforms, the People’s Bank of China signed a bilateral currency swap agreement with the Reserve Bank of Australia.  This report discusses the currency swap agreement and the introduction of PRC laws relating to the internationalisation of the RMB.

MAIN ARTICLE

  • Background
  • The currency swap agreement
  • Major PRC regulations concerning RMB internationalisation
  • Conclusion

How does it affect you?

  •  In line with the objectives of China’s 12th Five Year Plan, the execution of the Australia-China currency swap agreement is an important step for the Chinese Government’s foreign exchange reform and the expansion of cross-border use of RMB.
  •  The currency swap agreement will increase opportunities for Australian companies to settle trade between the two countries in RMB and make RMB-denominated investments.
  •  For companies conducting bilateral trade and investment between China and Australia, the currency swap agreement may present new opportunities to effectively avoid exchange rate risk and reduce conversion costs by settling or investing in RMB.

Background

It is widely believed that RMB internationalisation is an inevitable long-term trend. According to press reports, in 2011, the PRC’s cross-border RMB trade settlement had grown by more than 400 per cent on a year-on-year basis and accounted for approximately 10 per cent of China’s total foreign trade amount. HSBC estimates that, by 2015, RMB will become one of the top three trade settlement currencies.

Since 2009, the PRC Government has formulated various regulations in relation to RMB settlement of cross-border trade and RMB-denominated foreign investment.

To date, the PRC Government has signed more than 20 bilateral currency swap agreements with other countries. However, the currency swap agreement with Australia is the first that China has signed with a developed economy and it is therefore a significant development.

The currency swap agreement

The People’s Bank of China (PBOC) and the Reserve Bank of Australia (RBA) signed the bilateral currency swap agreement on 22 March 2012. The agreement allows exchange of local currencies between the two central banks of up to A$30 billion or RMB 200 billion. It is for an initial period of three years.

China has become Australia’s largest trading partner and the largest export market for iron ore, coal and gas. PRC enterprises are active in investing in Australia, particularly in the energy and resources sectors.

According to the RBA’s media release, the main purposes of the swap agreement are to support trade and investment between Australian and China, particularly in local-currency terms, and to strengthen bilateral financial cooperation. The swap agreement reflects the increasing opportunities available to settle trade between the two countries in RMB and to make RMB-denominated investments.

According to an official of the RBA, under the currency swap agreement, an Australian importer may contract with a PRC exporter in RMB and the RBA may acquire RMB under the swap agreement and lend it to the Australian importer’s bank. Given the existence of this swap agreement, Australian importers would be more confident in contracting in RMB than previously. The RBA official also confirmed that the swap agreement may be used for other purposes (eg cross-border investment), if agreed to by both the RBA and the PBOC.

Details of the agreement are not available to the public

Major PRC regulations concerning RMB internationalisation

The PRC Government has promulgated a number of regulations in respect of RMB internationalization since 2009. Details of such regulations (particularly the inbound/outbound investment related regulations) were set out in our previous Focus: Liberalising cross border investment in RMB. For the purpose of illustrating the ‘step by step approach’ taken by the PRC Government to achieve RMB internationalisation, which is the background of the aforementioned currency swap agreement and the clear thread in all of the trade and inbound/outbound investment related regulations, we set out below a brief summary of the key features of some milestone regulations in chronological order.

Trade-related regulations

Measures for the Administration of Trial Program of RMB Settlement in Cross-Border Trade (the measures).

The measures were jointly promulgated by the PBOC, the Ministry of Finance (MOF), the Ministry of Commerce (MOC), the General Administration of Customs (GAC), the State Administration of Taxation (SAT) and the China Banking Regulatory Commission (CBRC) on 1 July 2009.

The measures unveiled the ‘trial program’ of cross-border RMB trade settlement between:

  •  certain regions (ie Shanghai and four cities of Guangdong province) of mainland PRC; and
  •  Hong Kong/Macau/ASEAN states.

According to the measures, enterprises that are located in such regions and approved by the state may settle cross-border trade with overseas enterprises in RMB. The ‘approved’ enterprises may conduct RMB settlement either through commercial banks in Hong Kong or Macau who are permitted to conduct RMB business or through commercial banks in the mainland PRC acting as agents of overseas commercial banks.

Notice on Issues Relating to the Expansion of the Trial Program of Cross-Border Trade RMB Settlement.

This notice was promulgated by the PBOC, the MOF, the MOC, the GAC, the SAT and the CBRC on 17 June 2010.

It extended the geographical coverage of the ‘trial program’ of cross-border RMB trade settlement. Under the notice, RMB settlement is permitted for cross-border trade between enterprises in:

  •  20 provinces/autonomous regions/central government administered municipalities of the mainland PRC; and
  •  all overseas countries and regions.

In August 2011 it was further extended to the whole of mainland PRC.

Notice on Issues Related to RMB Settlement of Cross-Border Trade Conducted by Services Outsourcing Enterprises.

This notice was promulgated by the General Office of MOC and the General Office of PBOC on 22 October 2010.

It specified that outsourcing services enterprises of the PRC may conduct RMB settlement for the provision of outsourcing services to overseas customers.

Inbound investment-related regulations

Notice of the MOC on Issues Relating to RMB Foreign Direct Investment.

This notice was released by the MOC on 12 October 2011.

It permitted foreign investors to invest in the PRC by using their legally obtained overseas RMB funds. In summary, foreign investors can legally obtain overseas RMB funds by:

  •  settling cross-border trade in RMB;
  • issuing RMB bonds or RMB shares outside of the PRC or legally obtaining RMB outside of the PRC through other avenues; or
  • obtaining RMB funds in the PRC according to law (mostly derived from the foreign invested enterprises set up in the PRC by such foreign investors) and remitting such RMB funds out of the PRC.

Foreign investors must provide evidence or documents to the MOC (or its local branches) to prove the legality of how the overseas RMB funds were obtained.

The overseas RMB funds must not be directly or indirectly invested in securities or financial derivatives in the PRC, except in a few special circumstances. Nor can such RMB funds be used to provide entrusted loans (ie lending funds to PRC entities through a bank acting on behalf of the lender) to other entities in the PRC.

Outbound investment-related regulations

Measures for the Administration of the Pilot Scheme for Settlement of RMB for Overseas Direct Investment.

This measure was promulgated by the PBOC on 6 January 2011 and enables PRC entities to use RMB in overseas investment projects (including greenfield investment, M&A or acquisition/subscription of shares in overseas companies).

Conclusion

The execution of the currency swap agreement between China and Australia is widely perceived as a significant step towards the internationalisation of the RMB.

The summary of the relevant PRC regulations set out above demonstrates the PRC Government’s intention to expand the use of the RMB in cross-border trade and investment, which is also an inevitable trend given the growing economic strength of the PRC.

Australian companies should be aware of these developments and evaluate the implications and opportunities presented to them under the currency swap agreement and the relevant PRC regulations.

The views expressed herein are solely those of the author and have not been endorsed, confirmed, or approved by XBMA or any of the editors of XBMA Forum, nor by XBMA’s founders, members, contributors, academic partners, advisory board members, or others. No inference to the contrary should be drawn.

JAPANESE UPDATE – MERGERS AND ACQUISITIONS GUIDE 2012/13

Editors’ Note:  Masakazu Iwakura is a senior partner at Nishimura & Asahi and a member of XBMA’s Legal Roundtable. This paper was co-authored with Takeshi Nemoto, a senior associate of Nishimura & Asahi. As one of Japan’s leading M&A practitioners, Masakazu Iwakura has handled a variety of groundbreaking M&A transactions and also serves as Professor (of Corporate Law and M&A Law) at Hitotsubashi University, Graduate School of International Corporate Strategy and as an independent member of the board of directors of COOKPAD Inc., listed on the Tokyo Stock Exchange and the other listed companies.

Executive Summary:

Nishimura & Asahi has prepared a Q&A guide to public mergers and acquisitions law in Japan.  The country-specific Q&A looks at current market activity; the regulation of recommended and hostile bids; pre-bid formalities, including due diligence, stakebuilding and agreements; procedures for announcing and making an offer (including documentation and mandatory offers); consideration; post-bid considerations (including squeeze-out and de-listing procedures); defending hostile bids; tax issues; other regulatory requirements and restrictions; as well as any proposals for reform.

The Japanese guide is available here.

The views expressed herein are solely those of the author and have not been endorsed, confirmed, or approved by XBMA or any of the editors of XBMA Forum, nor by XBMA’s founders, members, contributors, academic partners, advisory board members, or others. No inference to the contrary should be drawn.

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