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
  • CapitaLand Limited
  • Martin Lipton
  • New York University
  • Wachtell, Lipton, Rosen & Katz
  • Liu Mingkang
  • China Banking Regulatory Commission (CBRC)
  • Dinesh C. Paliwal
  • Harman International Industries
  • Leon Pasternak
  • Bank of America Merrill Lynch
  • Tim Payne
  • Brunswick Group
  • Joseph R. Perella
  • Perella Weinberg Partners
  • Baron David de Rothschild
  • N M Rothschild & Sons Limited
  • Dilhan Pillay Sandrasegara
  • Temasek Holdings
  • 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
  • China Ocean Shipping Group Company (COSCO)
  • 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
  • Royal Ahold (Amsterdam)
  • Hein Hooghoudt
  • NautaDutilh N.V. (Amsterdam)
  • Sameer Huda
  • Hadef & Partners (Dubai)
  • Masakazu Iwakura
  • Nishimura & Asahi (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
  • Mannheimer Swartling (Stockholm)
  • 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

Singapore

CHINESE UPDATE: China Eases Controls On Cross-Border Security Transactions

Editors’ Note: This paper was contributed by Rachel Eng, Managing Partner of WongPartnership and a member of XBMA’s Legal Roundtable. Joseph He and Gerry Gan, partners and joint heads of WongPartnership’s China Practice, authored this article.

Highlights:

  • On 19 May 2014, the PRC State Administration of Foreign Exchange (“SAFE”) introduced a more streamlined administrative regime for the giving of cross-border security.
  • The validity of any cross-border security agreement is no longer subject to the prior approval, registration, and filing with SAFE, as well as other SAFE administrative requirements.
  • For certain types of securities, the security agreement must be registered with SAFE after execution. In some cases, registration/filing whether pre- or post-execution, is not required.
  • Banking and non-banking financial institutions in the PRC may provide cross-border security under a NBWD structure so long as they have been approved to engage in the business of providing security.

Main Article:
On 19 May 2014, the PRC State Administration of Foreign Exchange (“SAFE”) promulgated the Notice Regarding Administration of Foreign Exchange for Cross- Border Security (Hui Fa [2014] No. 29) (“Notice 29”). Notice 29 introduced a more streamlined administrative regime for the giving of cross-border security, and came into force on 1 June 2014.

It also annulled 12 existing regulations issued by SAFE, including:

  • the Implementation Measures on the Administration of External Security Provided by Onshore Entities ([97] Hui Zheng Fa Zhi No. 10); and
  • the Circular on Issues Concerning the Administration of External Security Provided by Onshore Entities (Hui Fa [2010] No. 39).

Executive Summary of Notice 29

Three categories of cross-border security

Regulatory requirements differ according to the type of cross- border security, of which there are three categories:

  • The security provider is a PRC entity, and the lender and the borrower are non-PRC entities (“Nei Bao Wai Dai” or “NBWD”);
  • The security provider is a non-PRC entity, and the lender and the borrower are PRC entities (“Wai Bao Nei Dai” or “WBND”); and
  • Any other type of cross-border security structure (for example, the security provider and the borrower are PRC entities and the lender is a non-PRC entity).

Salient provisions of Notice 29

The salient provisions of Notice 29 are summarised as follows:

  •  The validity of any cross-border security agreement is no longer subject to the prior approval, registration, and filing with SAFE, as well as other SAFE administrative requirements.
  • The previous system of pre-approved annual quotas by SAFE for NBWD and WBND has been removed.
  • For NBWD and WBND, the security agreement must be registered with SAFE after execution. For other types of cross-border security structures, registration / filing whether pre- or post-execution, is generally not required.
  • Other than certain specified cases, such as offshore bond issues, the previous requirement for an affiliated relationship between the security provider and the borrower, as well as the asset to debt ratio requirement imposed on the borrower have been abolished.
  • Individuals have been expressly permitted to be security providers for a NBWD structure. This arrangement will be regulated by reference to the rules applicable to non- banking institutions.
  • SAFE approval for the enforcement of security is abolished.

Nei Bao Wai Dai
Banking and non-banking financial institutions may provide cross- border security under a NBWD structure so long as they have been approved to engage in the business of providing security. This requirement does not apply to non-financial institutions.

SAFE approval not required

The security agreement may be executed without having to obtain prior approval from SAFE. However, it must be registered post-execution.

Restrictions on fund use

Funds borrowed pursuant to the offshore loan agreement may only be used for the borrower’s normal business operations. In addition, the funds cannot be repatriated back to China by way of loan, equity investment or securities investment, or by any other means, whether directly or indirectly unless specifically approved by SAFE.

Enforcement of the security

Upon the enforcement of the security, a foreign debt arises by way of subrogation as between the PRC security provider and the non-PRC borrower. This foreign debt claim must be registered with SAFE. In addition, until and unless the non-PRC borrower has discharged this foreign debt claim owed to the security provider, the security provider cannot enter into any additional new NBWD cross-border security transactions without SAFE’s approval.

Wai Bao Nei Dai

Requirements for WBND transactions

Subject to the following requirements (applicable to banking and non-banking financial institutions as well as non-financial institutions), a WBND cross-border security agreement may be entered into without prior SAFE approval:

  •  The borrower must be a non-financial institution registered and operating in China;
  • The lender must be a financial institution registered and operating in China;
  • The secured loan must be a loan (in RMB or a foreign currency) extended or committed by a financial institution in China (excluding entrustment loans); and
  • The security arrangement must be in line with applicable PRC and offshore laws.

Lifting of certain prior requirements

PRC domestic-funded entities are no longer subject to the WBND quotas and Foreign Invested Enterprises are not subject to the borrowing gap (between the total investment and the registered capital) when accepting offshore security. The PRC lender must report the WBND data to SAFE via the capital account information system.

Enforcement of the security

Upon enforcement of the NBWD security, the PRC lender (i.e., the financial institution) may receive the proceeds from the enforcement directly from the non-PRC security provider. As the enforcement of the security will give rise to a foreign debt owed by the PRC borrower to the non-PRC security provider, the borrower will need to register and file this foreign debt with SAFE. SAFE will check compliance on the WBND upon registration.

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.

EU Update – European Union and Singapore Initial Free Trade Agreement

Editors’ Note: Geert Potjewijd is a partner at De Brauw Blackstone Westbroek, resident in Beijing, and a member of XBMA’s Legal Roundtable. This paper was authored by Dieter Wolff and Jaap de Keijzer, both partners at De Brauw Blackstone Westbroek. De Brauw Blackstone Westbroek is a leading Dutch law firm with broad expertise in M&A and governance matters.

Highlights:

  • The establishment of a free trade area between the EU and Singapore is expected to have significant benefits for Singapore and EU companies. Annual EU exports to Singapore could rise by EUR 1.4 billion over 10 years and annual exports by Singapore companies (including EU companies based in Singapore) could rise by EUR 3.5 billion.
  • Key arrangements include elimination of customs duties and relaxation or elimination of regulatory and technical requirements and further market liberalization.
  • The agreement also provides for consolidation of existing protection of Intellectual Property, standards of labour and environmental law, promotion of sustainable development and an improved dispute resolution mechanism.
  • This agreement may act as a catalyst for the establishment of more free trade areas between the EU and ASEAN member states, and in the long-term an agreement between the EU and all ASEAN countries.

 

Main Article:

The European Union and Singapore have initialled an agreement to establish a free trade area between the EU and Singapore after several years of negotiations. The EU-Singapore Free Trade Agreement (“EUSFTA”) is expected to enter into force in late 2014 or early 2015 and will give Singapore and EU companies further access to each other’s markets.

The EUSFTA is expected to have significant benefits for Dutch and other EU companies exporting products or services into Singapore, as well as for companies that have operations in Singapore (including Dutch and other EU companies) and import into the EU. The EUSFTA will also benefit the services industry, with improved possibilities to penetrate the Singapore market, re-establishing a level playing field with other foreign industry players.

Under the EUSFTA, there will be enhanced public procurement opportunities which should increase business opportunities in various sectors in which Dutch companies are active around the world. The EUSFTA is also considered an important step towards bilateral free trade agreements between the EU and other ASEAN member states.

This Legal Alert highlights the EUSFTA’s main features.

Trade barriers removed: best treatment approach
Free trade agreements remove trade barriers by eliminating customs duties, relaxing or eliminating regulatory and technical requirements and liberalising markets. The EU and Singapore, under the EUSFTA, are to grant each other favourable arrangements at least on par with comparable free trade agreements. Some of the key arrangements are outlined below.

Elimination of customs duties:

  • The EU is to eliminate virtually all customs duties for imports from Singapore within five years, with 75-80% of the duties being eliminated when the EUSFTA enters into force. Currently, approximately half of the imports from Singapore into the EU are free of customs duties.
  • Singapore is to continue the existing status of no customs duties on most EU imports into Singapore and eliminate remaining customs duties, such as the current customs duties on beer. Singapore, as part of its open economy strategy, already unilaterally applies no duties to most imports. The EUSFTA will provide comfort to EU exporters that this situation will not change.

Relaxation or elimination of regulatory and technical requirements and further market liberalisation:

  • Further access to the services market for both Singapore and the EU, including for the financial and insurance sectors, engineering and maritime transport
  • Mutual recognition of technical standards and certifications in different areas, such as cars, electronics and green technologies; and reduction of technical barriers to trade, including beneficial rules on marking and labelling, reducing the barriers and associated costs
  • Simplification of customs procedures and rules of origin, reducing trade transaction costs, while improving cooperation for the safety and security of legitimate trade
  • Re-evaluation and updating of Singapore’s import approval procedures for raw or processed products of animal and plant origin, in particular meat
  • Greater transparency over the award of licences
  • Improved transparency on pricing of / reimbursement for pharmaceutical products
  • Improvement of level playing field through rules on competition, including antitrust and state aid, and avoidance of detrimental licensing requirements affecting market accessibility and competition
  • Widening of access to public procurement, expanding parties’ existing commitments under the WTO
  • Government Procurement Agreement

The EUSFTA also provides for:

  • Consolidation of existing protection of Intellectual Property, and agreement on the basic rules of (noncriminal) enforcement; and better protection for geographical indications (GI) for European products in Singapore
  • Detailed arrangements regarding standards of law in the area of labour and the environment
  • Promotion of sustainable development including corporate and civil social responsibility
  • An improved dispute resolution mechanism, reducing time required and increasing transparency

Significant economic benefits for EU and Singapore companies
Singapore, with a population of 5.3 million, accounts for approximately one-third of all the trade between the EU and the ASEAN countries, making Singapore the EU’s largest trading partner in ASEAN (which has a consumer base of some 600 million people). There are more than 9,000 European companies established in Singapore. In 2012 the EU was the second largest trading partner of Singapore (after neighboring Malaysia) with an 11% share of Singapore’s total trade.

The Netherlands is an important economic partner to Singapore. Dutch companies in Singapore are involved in a wide range of industries, such as electronics, fast-moving consumer goods, food processing, oil & gas, chemicals, engineering, transport, financial and other services. In 2012, the Netherlands was Singapore’s third largest trading partner in the EU.

An economic analysis prepared by the Chief Economist Unit of the European Commission’s Directorate General for Trade states that as a result of the EUSFTA the annual EU exports to Singapore could rise by EUR 1.4 billion over 10 years and annual exports by Singapore companies (including EU companies based in Singapore) by EUR 3.5 billion.

Expected catalyst for free trade agreements with other ASEAN member states
The EU and ASEAN countries started discussions on a free trade agreement in 2007. Following slow progress the EU abandoned discussions in 2009 and started pursuing bilateral agreements. The EU is currently pursuing negotiations on bilateral free trade agreements with ASEAN members Malaysia, Thailand and Vietnam. The detailed arrangements negotiated between the EU and Singapore can be expected to assist those negotiations, acting as a catalyst for the establishment of more free trade areas between the EU and ASEAN member states, and in the long-term an agreement between the EU and all ASEAN countries.

Next steps
The draft EUSFTA is currently being translated into all official EU languages and will then be submitted for approval / ratification by the relevant authorities of the EU and Singapore.

The EU and Singapore are currently still negotiating arrangements on investment protection. The initialed version of the EUSFTA already includes an empty chapter for this topic and parties intend to include the outcome of these negotiations in the EUSFTA before it enters into force.

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.

SINGAPOREAN UPDATE: Changes to the Singapore Code on Take-Overs and Mergers

Editors’ Note:  This paper was contributed by Rachel Eng, Managing Partner of WongPartnership and a member of XBMA’s Legal Roundtable.  The author, Andrew Ang, is deputy head of the Corporate/Mergers & Acquisitions Practice of WongPartnership.

Highlights:

  • The Singapore Code on Take-overs and Mergers was amended with effect from 9 April 2012.
  • The main changes include updating the Code to incorporate current practices on the takeover of real estate investment trusts and business trusts, setting out when collective shareholder action amounts to acting in concert, and dealing with joint offers and the acquisition of derivatives.

MAIN ARTICLE

The Monetary Authority of Singapore (“MAS”) has amended the Singapore Code on Take-overs and Mergers (“Code”). The revised Code has taken effect as from 9 April 2012. The changes were first the subject of a consultation by the Securities Industry Council (“SIC”) in October 2011. We had reported on the consultation in an earlier update. Following the consultation, the SIC amended some of its proposed changes. The details of the finalised changes are set out in this update.

Executive Summary

The changes to the Code include the following:

  • An option or derivative transaction has been made subject to Rule 14 on mandatory offers. Persons who would cross the mandatory offer thresholds had such transactions involved the transfer of shares must consult the SIC beforehand.
  • Dealings in long options and derivatives over offeree company shares during the offer period by associates who hold 5% or more in the offeree company must be disclosed.
  • An offeror and its concert parties must disclose the number and percentage of their shareholdings which have been charged as security, borrowed, or lent.
  • The shareholding threshold for a shareholder to disclose dealings in the offeree company shares during the offer period has been lowered from 10% to 5%.
  • Shareholders of a company that is buying back its shares are provided with a class exemption from the requirement to make a mandatory offer as a result of the share buy-back subject to conditions.
  • The factors which the SIC would consider in determining whether to permit an offeree company shareholder to invest in the bid company to the exclusion of all other offeree company shareholders have been set out.
  • The circumstances where shareholders voting together on a board control-seeking resolution might be regarded as parties acting in concert have been set out.

Other changes made clarify certain powers of the SIC to take action in respect of breaches of the Code, as well as the application of the Code to real estate investment trusts and business trusts.

Lending, Borrowing, and Charging of Shares

In October 2008, the takeover of a Singapore listed company ran into problems when it transpired that the offeror had lent his shares to a third party that subsequently became insolvent and consequently failed to return equivalent shares to the offeror. The share lending was not disclosed by the offeror during the takeover bid. The takeover offer was subsequently aborted as the offeror was no longer able to fulfil its takeover obligations.

To prevent a recurrence of such a situation, the Code now expressly stipulates that offerors and their concert parties must disclose if the offeree company shares that they hold have been charged as security, borrowed, or lent. In addition, the following clarifications have been included (pursuant to feedback after the consultation):

  • When making disclosure, the offeror should specify both the number and the percentage of the shares in the offeree company held by the relevant person which have been charged as a security interest, borrowed, or lent.
  • If the offeror has borrowed shares which he has on-lent or sold, these should not be included when disclosing the number of shares held by him.
  • In determining the number of acceptances received during a general offer, shares borrowed by the offeror may not normally be counted towards fulfilling the acceptance condition. In addition, where the mandatory bid obligation was triggered as a result of share borrowing, the borrower should consult the SIC on how the borrowed shares should be treated for the purpose of the acceptance condition.

Collective Shareholder Action

The Code has been amended to provide greater clarity as to when the action of shareholders voting together on particular resolutions at one general meeting might be regarded as acting in concert. It now expressly makes clear that shareholders may be presumed to be acting in concert where they have an agreement or understanding to requisition or threaten to requisition resolutions at a general meeting that have the purpose of seeking control of the board. Once the presumption arises, subsequent acquisitions of interests in shares by any member of the group could give rise to an obligation to make a general offer.

Joint Offerors

In some takeover offers, it is proposed that certain offeree company shareholders are to retain an interest in the offeree company following the offer through the exchange of their offeree company shares for shares in the bid vehicle. Where it was previously silent, the Code now makes clear that such arrangements would not be regarded as a special deal under the Code if the offeror and the offeree company shareholder had come together to form a consortium on such terms and in such circumstances that each of them can be considered to be a joint offeror.

In order to determine whether a person is a joint offeror, the SIC will look to the following factors:

  • The proportion of equity share capital of the bid vehicle the person will own after completion of the acquisition;
  • Whether the person will be able to exert a significant influence over the future management and direction of the bid vehicle;
  • The contribution the person is making to the consortium;
  • Whether the person will be able to influence significantly the conduct of the bid; and
  • Whether there are arrangements in place to enable the person to exit from his investment in the bid vehicle within a short time or at a time when other equity investors cannot.

Definition of “Associate”

Currently, one of the categories of persons listed as associate is a holder of 10% or more of the equity share capital of the offeror or offeree company. The Code has been amended to lower the threshold to 5%.

Options and Derivatives

While as a matter of practice the SIC requires persons who acquire long options or derivatives which might cause them to cross the mandatory offer thresholds to consult it before entering into such transactions, the Code itself does not currently address the question. Following the amendment, it now specifies that a person who acquires or writes an option or derivative which causes him to have a long economic exposure would normally be regarded as having acquired shares for the purposes of determining whether the specified thresholds for making a mandatory general offer have been crossed. He will have a long economic exposure if he would benefit economically if the price of the security goes up and will suffer economically if the price of the security goes down.

In addition, the acquisition or writing of an option or derivative will include situations where the option or derivative is acquired as part of a derivatives reference basket or index. The rule will not apply if, at the time of dealing, relevant securities to which the derivative is referenced represent less than 1% of the class in issue and less than 20% of the referenced securities by value. This is, however, only a guideline and is not determinative of whether the rule is excluded.

The Code will also require disclosure of dealings in long options and derivatives during the offer period by persons holding 5% or more in the offeree company’s issued share capital. “Dealings in relation to derivatives” is defined widely to include taking, granting, acquisition, disposal, exercising (by either party), lapsing, closing out, conversion, or variation.

Share Buy-backs

When a company buys back its shares, any resulting increase in the percentage of voting rights held by a shareholder and persons acting in concert with him is treated as an acquisition for the purpose of triggering the obligation to make a mandatory general offer. Currently, however, parties may apply for an exemption from the SIC provided they can demonstrate that the share buy-back meets certain specified conditions. As the grant of such exemptions have been routine and straightforward, the Code will now dispense with the requirement for parties to seek an exemption so long as they comply with these conditions.

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 – Proposed Changes to Singapore’s Guidelines for Merger Control

Editors’ Note:   This paper was contributed by Rachel Eng, Managing Partner of WongPartnership and a member of XBMA’s Legal Roundtable.  Ms. Eng is a leading expert in both domestic and cross-border M&A in Singapore and other jurisdictions in Southeast Asia.  The author is Ameera Ashraf, head of WongPartnership’s Competition & Regulatory Practice.

Highlights:

  • Changes have been proposed to the Competition Commission of Singapore’s Guidelines on Merger Procedures.
  • The changes give parties greater guidance on the self-assessment of mergers, obtaining a confidential opinion, and the treatment of confidential information.

MAIN ARTICLE

On 20 February 2012, the Competition Commission of Singapore (“CCS”) issued a consultation paper (“Consultation Paper”) proposing various changes to its Guidelines on Merger Procedures (“Guidelines”). The Guidelines essentially set out the procedures that are followed by the CCS in its review of notified mergers. This set of proposed changes (“Proposed Guidelines”) are intended to update the Guidelines to reflect the experience in merger control gained by the CCS over the last four and a half years. The CCS is not proposing any changes to the Guidelines on the Substantive Assessment of Mergers at this juncture

The main changes to the Guidelines that have been proposed are as follows:

  • A new section provides parties with guidance when considering whether their merger is likely to be a prohibited merger under section 54 of the Competition Act and should therefore be notified to the CCS for approval;
  • The CCS’s approach to market intelligence and the role of complainants and third parties in the context of merger control is clarified;
  • A new procedure for obtaining a confidential opinion from the CSS on the parties’ proposed merger is set out; and
  • Guidance is provided on what constitutes confidential information for the purposes of providing information to the CCS for its assessment of the merger.

Guidance for the Self-Assessment of Mergers

By way of background, it should be noted that the Competition Act does not require the approval of the CCS before a merger may be undertaken. However, where a merger results in a substantial lessening of competition (“SLC”) within any market in Singapore for goods or services, that merger is prohibited. If the CCS has reasonable grounds for suspecting that a merger has infringed, or that an anticipated merger if carried into effect will infringe, this prohibition, it may open an investigation on its own initiative. Ultimately, if the CCS determines that there has indeed been a SLC, it can require parties to split up the merged entity and/or impose financial penalties on them.

Because notification of a merger is voluntary, parties have to assess for themselves whether the merger is likely to result in a SLC and would hence need to be notified to the CCS. To enable parties and their counsels to engage in this self-assessment, the Proposed Guidelines provide guidance on the types of mergers that would raise concerns.

On the one hand, a new minimum threshold is introduced. The Proposed Guidelines indicate that mergers involving small companies are unlikely to give rise to a SLC. Small companies, in turn, are defined as companies who, in the financial year preceding the transaction, had a turnover in Singapore below S$5 million, and a turnover worldwide below S$10 million.

On the other hand, merger parties are strongly encouraged to notify the CCS where the following two conditions are met:

  • The merger parties supply goods or services of the same description to customers in Singapore. In this regard, the Proposed Guidelines advise that the merger parties should have regard to the narrowest reasonable description of goods or services. Furthermore, there is no need for merger parties to consider the degree of supply and demand side substitution in order to define the relevant market.
  • In addition, the merger parties’ combined share of the supply of the overlapping goods or services in Singapore exceeds 40%. In relation to determining whether or not the 40% share is met, the parties can refer to sales by value, volume, number of (retail) outlets, number of bids won, etc.

It should be noted that the Proposed Guidelines refer to a test based on the parties’ share of the supply of goods or services and not the parties’ share of the market.

Market Intelligence and Role of Third Parties

Where a merger is not notified, the Consultation Paper reminds parties that the CCS may conduct an investigation if there are reasonable grounds for suspecting that a merger has infringed, or that an anticipated merger if carried into effect will infringe, the prohibition against mergers that result in a SLC. Such reasonable grounds may be provided from the CCS’s own market intelligence or as a result of complaints received.

The Proposed Guidelines also clarify the role of third parties and complainants. They explain that the CCS is under no obligation to follow-up or investigate all complaints relating to non-notified mergers. This is in line with the voluntary nature of the merger regime in Singapore, and also aims at discouraging speculative complaints. As regards third parties, the Proposed Guidelines reiterate the position that they can express their views on notified mergers and on commitments, and can also apply to the courts for review.

Confidential Opinion from the CCS

The Proposed Guidelines set out a new process whereby merger parties may obtain a confidential opinion from the CCS whether a merger is likely to raise anti-competition concerns. It is proposed that parties may approach the CCS for such an opinion in the following circumstances:

  • The merger must not be completed but there must be a good faith intention to proceed with the transaction, as evidenced to the satisfaction of the CCS by the party or parties requesting the confidential advice.
  • The merger must not be in the public domain. In exceptional circumstances, the CCS may consider giving confidential advice in relation to mergers that are no longer confidential, but the requesting party or parties must provide good reasons why they wish to receive confidential advice.

When confidential advice has been sought, the CCS reserves the right to investigate the merger situation where the statutory test for doing so is met. The Proposed Guidelines also clarify that the requesting party or parties are expected to keep the CCS informed of significant developments in relation to the merger situation in respect of which confidential advice was obtained, for example, the completion date or the abandonment of the merger.

Confidential Information

The Proposed Guidelines set out the CCS’s practice of requiring parties to provide two versions of their notification filings: a version with confidential information redacted, and another setting out the confidential information. The redacted version may be used by the CCS to approach third parties, while the unredacted version will be kept confidential by the CCS.

The Proposed Guidelines warn, however, that the CCS can stop the indicative timeframe of its review if it considers the confidentiality claims made by the parties to be excessive or unreasonable. They also clarify that the following types of information are not likely to be considered confidential by the CCS:

  • Information that relates to the business of any of the merger parties but is not commercially sensitive in the sense that disclosure would cause harm to the business;
  • Information that reflects the merger parties’ views of how the competitivity effects of the merger could be analysed—this type of information can be produced by any reasonably well-informed market participants, trade analysts, or legal/economic advisors; 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.

Finally, the Proposed Guidelines state that while the CCS usually publishes only non-confidential merger decisions, it may disclose confidential information when necessary. This may occur, for example, in the context of third party enquiries or to explain the CCS’s reasoning in its final decisions.

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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