Areview of recent feedback of the China Securities Regulatory Commission finds that the regulator focuses on two aspects related to anti-monopoly issues: (1) whether the deal complies with the provisions of Article 11 (1) of the Measures for the Administration of Major Asset Restructuring of Listed Companies and anti-monopoly laws and regulations, and needs to go through an operator concentration review procedure with the Ministry of Commerce (MoC); and (2) process of the MoC’s approval procedure, the expected date of completion or any potential obstacle to completing the procedure, and potential impact on the transaction.
FILING AN APPLICATION
First, it is necessary to assess if the deal involves any operator concentration under Article 20 of the Anti-Monopoly Law of the People’s Republic of China. In Shanxi, a reply from Blue Flame Holding (000968) to the CSRC states that, according to the restructuring report, the transaction where Taiyuan Coal Gasification and Shanxi Jincheng Anthracite Coal Mining Group acquire assets representing 100% equity in Shanxi Lanyan Coalbed Methane Group for a consideration comprising a major asset swap, a share issue and a cash payment does not involve any monopolistic agreement between or among business operators or abuse of dominant market positions by business operators as specified under the aforementioned Items (1) and (2) of Article 3 of the Anti-Monopoly Law of the PRC. Besides, while Taiyuan Coal Gasification’s current main business involves production and sales of raw coal and clean coal, Shanxi Lanyan Coalbed Methane Group focuses on coal mine gas control and exploration, development and utilization of coalbed methane. On completion of the proposed restructuring, all production and operational assets of Taiyuan Coal Gasification related to its existing business will be transferred to Taiyuan Coal Gasification (Group), which will shift its business focus from production and sales of raw coal and clean coal to coal mine gas control and exploration, development and utilization of coalbed methane. The transaction does not involve operators in related markets or the same industry. It is does not involve concentration of operators that either has or may have the effect of eliminating or restricting competition. Therefore, the transaction does not require anti-monopoly review because it does not involve Article 3 (3) of the Anti-Monopoly Law of the PRC as discussed earlier.
Second, if concentration of operators is involved, we should assess if the transaction meets filing thresholds as specified in Article 3 of the Provisions of the State Council on Thresholds for Prior Notification of Concentrations of Undertakings and requires completion of an operator concentration review procedure with the MoC. This may be done with reference to the feedback to the CSRC from Wuxi New Hongtai Electrical Technology (603016) that, according to publicly available information, New Hongtai generated operating income of RMB377,221,300 in 2016. According to the information from Beijing Tianyi Shangjia New Material, its 2016 operating income stood at RMB471,498,546.33. As the combined domestic revenue of New Hongtai and Tianyi Shangjia does not exceed RMB2 billion and their combined global revenue is not over RMB10 billion for the latest fiscal year, the deal does not reach the thresholds for a prior concentration review procedure with the competent commerce authority under the State Council as prescribed in the Provisions of the State Council on Thresholds for Prior Notification of Concentrations of Undertakings.
Third, if the filing crosses the thresholds, it is necessary to assess if the deal is eligible for any exemptions as prescribed under Article 22 of the Anti-Monopoly Law of the PRC. In its reply to the CSRC, Sansteel Minguang (002110) states that the deal meets the circumstances prescribed in the Anti-Monopoly Law of the PRC that makes “it eligible for exemption from filing with the anti-monopoly enforcement body under the State Council, since Fujian Sangang (Group) holds over 50% equity in both the listed company and Fujian San’an Iron and Steel immediately prior to the deal”.
ADVICE TO LAWYERS
1. Disclose truthfully the progress of MoC’s review procedure. For example, provide information on the receipt of the Filing Acceptance Notice from the MoC.
2. Estimate the timetable for obtaining approval from the MoC in accordance with the PRC’s Anti-Monopoly Law and the Interim Provisions on Standards Applicable to Simple Cases of Concentration of Undertakings.
3. Assess if the transaction has or may have the effect of eliminating or restricting competition from perspectives, which may include, but not be limited to, market control, concentration and access of or by operators taking part in the concentration, and analyze how the MoC’s operator concentration review procedure may proceed. For example, a reply to the CSRC from Wuxi Huadong Heavy Machinery (002685) states that the listed company and Guangdong Harvest Star Technology are not doing business in the same related markets or upstream or downstream operators to each other. Both account for less than 25% in each of the markets to which the deal is related. Moreover, the listed company is not engaging in CNC metal-cutting machine tools like Harvest Star. It is also not doing any business in the upstream or downstream areas of the CNC metal-cutting machine tool industry. The deal between the parties is not a horizontal or vertical merger aimed at increasing market concentration by directly reducing or eliminating competitors in the market. It will not have the effect of eliminating or restricting competition in the relevant market. Therefore, the operator concentration review procedure that the deal is bound to undergo will not pose any substantive legal obstacle to the deal.
4. Obtain an undertaking from the listed company that no merger and acquisition or restructuring will be implemented before the operator concentration filing issue passes the MoC’s anti-monopoly review procedure and provide a risk disclosure in the restructuring report.
Cao Yiran is a partner and Zhang Yu is an intern at Grandway Law Offices