China’s economy faced tough challenges but still saw strong performance. In 2017, China Business Law Journal’s editorial team selected outstanding deals and cases supported by remarkable legal efforts
Our winning deals have, as in previous years, been chosen based on various factors. We attach most importance to the overall significance, complexity and innovative nature of the deals and cases, while also taking into account the deal size and broader interests.
China Business Law Journal’s independent editorial team made its own choices on the deals we felt were the shining stars for the year. The winning deals and cases have been placed in three sections: deals in China; overseas deals; and disputes and investigations. In each section, the deals or cases are listed in alphabetical order to avoid presumptions of ranking.
DEALS IN CHINA
ARA Asset Management’s acquisition of Century Link in Shanghai
CATEGORIES: Real estate; M&A
LEGAL COUNSEL: Zhong Lun Law Firm advised on legal due diligence and the domestic part of the transaction document. Baker McKenzie acted as overseas legal counsel for the purchaser. Freshfields advised Cheung Kong Property Holdings Limited, the seller.
KEY POINTS: Century Link, a landmark located at Lujiazui Finance and Trade Zone in Shanghai, is valued at about RMB20 billion (US$3 billion) and consists of two office towers of 32 storeys each, a retail podium of six storeys and a basement.
Zhong Lun Law Firm was involved in domestic legal due diligence, reviewing the transaction and finance documents and onshore closing. The firm says this project has been one of the deals of the year in the Shanghai real estate market in terms of deal size and complexity.
Zhong Lun says that with respect to the transaction structure, as an innovation of usual practice, the firm controlled the potential risks for the client by means of setting up a long completion system, distinguishing between handover completion and share completion, and corresponding payment schedule and financing.
Zhong Lun also assisted the client to smoothly complete the project, as well as to control the financial cost by means of an innovation of financing combination.
China Investment Securities – Wuhan Metro trust beneficiary right No. 1 green asset-backed special programme
CATEGORIES: Asset securitization
LEGAL COUNSEL: SG&CO PRC Lawyers provided legal services for the deal.
KEY POINTS: China Investment Securities – Wuhan Metro trust beneficiary right No. 1 green asset-backed special programme was a securitization scheme backed by corporate assets issued on the Shanghai Stock Exchange. With a size of RMB1.5 billion (US$230 million), it was the first green asset securitization scheme in the rail transit sector of China.
According to SG&CO, the underlying asset was a trust beneficial right transferred from the originator to the manager on the inception date of the programme, which related ultimately to the rental income (including fines, late fees and damages, if any), for a specified period of time, from the attached property and the underground space of the rail transit infrastructure.
SG&CO’s meticulous argumentation on the usufruct of the underground space, aimed at proving legitimacy and compliance of the underlying asset, may be of great value for future securitization schemes to be launched by the rail transit sector in China.
China Resources Healthcare acquires Phoenix Healthcare
CATEGORIES: Healthcare; M&A
LEGAL COUNSEL: Zhong Lun Law Firm and Reed Smith Richards Butler acted respectively as the PRC counsel and Hong Kong counsel to China Resources Healthcare Group. Commerce & Finance and Shearman & Sterling were respectively the PRC counsel and Hong Kong counsel of Phoenix Healthcare Group.
KEY POINTS: Phoenix Healthcare was a leading private hospital group in China. Upon closing the acquisition, China Resources Healthcare became the largest shareholder of Phoenix Healthcare, which was renamed China Resources Phoenix Healthcare Holdings Company (CR Phoenix) and became the largest medical services platform in China.
Zhong Lun advised China Resources Healthcare on legal due diligence, preparation of transaction documents and antitrust clearance. The law firm says that the deal had to be structured with extra care to avoid triggering Hong Kong Stock Exchange’s reverse takeover rules that entail application of the new IPO review criteria, as well as to ensure China Resources Healthcare’s control over the target upon closing and meet special requirements relating to accounting standards.
Taking into account the different nature of the many medical institutions involved, the transaction plan was innovative enough to provide a solution that comprised a diversified governance structure and leveraged consulting services and entrusted management. It successfully passed the review process of the Hong Kong Stock Exchange.
With its enormous size, the deal covered a complicated combination of assets. Zhong Lun says that it involved more than 100 for-profit and non-profit medical institutions, which included public institutions, private unincorporated businesses and limited liability companies, sponsored or invested by entities such as the government, state-owned enterprises, subsidiaries of listed companies or natural persons, to name a few.
China Unicom’s mixed-ownership reform
CATEGORIES: SOE reform; Telecom
LEGAL COUNSEL: Commerce & Finance advised the issuer China Unicom. King & Wood Mallesons was legal counsel to the securities traders. Han Kun Law Offices acted for China Structural Reform Fund. Freshfields advised China Unicom (Hong Kong) on the issue of new shares to its parent company, China Unicom (BVI) Limited.
KEY POINTS: China Unicom’s mixed-ownership reform – the first of its kind ever undertaken by a central state-owned enterprise (SOE) and the telecom industry in China – used a structure that consisted of private placement and transfer of existing shares. Strategic investors taking part in the deal included Baidu, Alibaba, Tencent, JD, Suning Appliance, China Life Insurance and China Structural Reform Fund. According to Commerce & Finance, this was the first time that the five Chinese internet giants Tencent, Alibaba, Baidu, JD and Suning invested into the same A-share company through a single deal, and it blazed a trail for large internet companies to invest in the telecom industry.
Commerce & Finance says that there were several factors adding complexity to the deal, making it extraordinary and unprecedented: it involved a consortium of 10 investors, securities issuance by two companies listed on domestic and foreign exchanges, equity incentive plans for employees of a central SOE, as well as necessary communication and co-ordination with a number of regulators including the National Development and Reform Commission, State-owned Assets Supervision and Administration Commission, China Securities Regulatory Commission, Ministry of Commerce, Ministry of Industry and Information Technology, the People’s Bank of China, among others.
This deal set a meaningful and specific example that may be inspiring for mixed-ownership reforms of other SOEs (especially SOEs from industries in which foreign capital access is restricted, such as telecoms), non-public offerings by SOEs listed as red chips, and equity transfers by controlling shareholders of listed SOEs and their equity incentive schemes.
Comprehensive management project for Yitong River in Changchun, Jinlin province
LEGAL COUNSEL: GongCheng Law Firm from Jilin province acted for Changchun City Construction Investment Group.
KEY POINTS: As an integrated solution to environmental and ecological issues throughout the Yitong River basin, this project consisted of nearly 200 sub-projects ranging from sewage pollution control, flood prevention and ecological management to road traffic control and landscape transformation. With a total investment of about RMB50 billion and an impact on urban safety, health and economic development, it has been rated as the most imperative among Jilin’s five key infrastructure projects.
GongCheng says the deal structure was complex because the project encompassed a complicated combination of infrastructure projects that would take a long time to be completed with the joint effort of many entities, not to mention substantial investment to be spent. The firm says it focused on tackling three challenges, i.e., identifying legal relationships, structuring the deal and rationalizing the project management structure.
Legal services provided included legal risk assessment, deal structuring, a reasonableness review on project management structure, and a review of relevant systems and contracts, including those related to project financing, EPC (engineering, procurement and construction), construction supervision, consulting and procurement.
COSCO SHIPPING Ports invests in Qingdao Port International
CATEGORIES: Shipping; M&A
LEGAL COUNSEL: Wintell & Co and Woo Kwan Lee & Lo acted respectively as PRC counsel and Hong Kong counsel to COSCO SHIPPING Ports. Jia Yuan Law Offices was PRC counsel and Freshfields Bruckhaus Deringer was Hong Kong counsel to Qingdao Port International.
KEY POINTS: China Shipping Terminal Development, a subsidiary of COSCO SHIPPING Ports (the subsidiary of its Hong Kong-listed controlling shareholder, COSCO SHIPPING Holdings), subscribed for 1,015,000,000 non-tradable shares of Qingdao Port International for a total consideration of RMB5.798 billion.
The lawyers had an enormous amount of work to get done in a very short timeframe. According to Wintell & Co, it took less than five months to complete the transaction, from commencement of negotiations to closing. In addition to deal structuring, preparing a due diligence report and drafting transaction documents, lawyers needed to assist in negotiations and closing, communicate with government authorities, complete all approvals, registrations and filing procedures necessary, and ensure proper disclosure by the listed companies.
Wintell & Co says that in view of the sophisticated shareholding structures of the parties, the size of the deal and the fact that involved parties were large shipping companies with a state-owned enterprise background, the firm focused on detecting true intentions of the counterparty while keeping legitimate interests and commercial appeals of their client at top of mind in the negotiation process.
CSIC’s debt-for-equity swap
CATEGORIES: Capital market; Debt-for-equity swap
LEGAL COUNSEL: Jia Yuan Law Offices was legal counsel to China Shipbuilding Industry Corporation (CSIC).
KEY POINTS: This was a market-oriented debt-for-equity swap targeted at a core military enterprise. There were eight investors, including big names like China Cinda Asset Management, China Orient Asset Management, China State-owned Capital Ventures Fund, China Structural Reform Fund and China Life Insurance (Group) Company.
It was the first truly market-oriented debt-for-equity swap driven by the Opinions of the State Council on Actively and Steadily Lowering the Leverage Ratio of Enterprises. Being proactive in response to the State Council’s policy, CSIC was able to capitalize on opportunities presented by the possible turning point of the global shipbuilding industry, attracting a diversified investor base that included financial asset managers, insurance asset managers and state-owned venture capital funds. In a pioneering move, the debt-for-equity swap revealed a possible approach to deleveraging, says Jia Yuan.
Jia Yuan adds that by arranging for the concerted action of investors and CSIC, the deal ensured absolute control of CSIC over two core military enterprises, namely Dalian Shipbuilding Industry and Wuchang Shipbuilding Industry Group, thus enabling approval from the State Administration for Science, Technology and Industry for National Defence.
Dalian Container Terminal’s equity integration
CATEGORIES: M&A; Ports
LEGAL COUNSEL: EY Chen & Co Law Firm was legal counsel for this equity integration, and was responsible for advising on all relevant legal issues.
KEY POINTS: The deal was a merger of three container terminal operators. Dalian Port Container Terminal (DPCM) and Dalian International Container Terminal (DICT) were merged into Dalian Container Terminal (DCT), the existing entity after the merger.
The container throughput of the three terminal operators accounted for about 97% of the total throughput of Dalian Port, the busiest container port on the coast of northeast China. According to EY Chen & Co, the equity integration of the three companies was an integral part of a solution to bring all coastal ports of Liaoning province under common control. The deal was an equity integration in a real sense, which was expected to work more thoroughly and effectively than business integration. Addressing the problems resulting from state-owned enterprises’ (SOEs) fragmented approach to investing via multiple layers of entities, the deal also coincided with the trend of SOE reform.
The deal posed quite a few challenges. EY Chen & Co says that with different equity and controlling structures, the three terminal operators had shareholders of diversified backgrounds, including central SOEs, local SOEs and foreign shareholders from Singapore, Denmark and Japan. Since the preferential tax policy applicable to the deal would expire on 31 December 2017, closing of the deal had to occur by November 2017, and the relevant tax filing procedures needed to be completed by the end of 2017. Moreover, antitrust clearance from the Ministry of Commerce would take at least two months.
In light of the complicated equity structures of the terminal operators and the diverse interests of their shareholders, the team of EY Chen & Co needed to gain an understanding of the shareholders, including their style of doing things, past experience in dealing with similar transactions and their staffing for the proposed deal. The team also needed to know what fundamental interests the shareholders were seeking through the deal.
Formation of the Guotong Private Equity Fund
CATEGORIES: Private equity
LEGAL COUNSEL: Zhong Lun Law Firm was PRC legal counsel to the Guotong Private Equity Fund and the management company of the fund.
KEY POINTS: Guotong Private Equity Fund’s value has reached RMB150 billion and its limited partners include national financial institutions and state-owned enterprises.
According to Zhong Lun, with the approval of the State-owned Assets Supervision and Administration Commission of the State Council, the fund provides financing and professional support for Chinese enterprises to participate in construction projects under the Belt and Road initiative to promote equipment manufacturing capacity and to facilitate international co-operation.
Zhong Lun says the firm’s legal services in this deal included the structuring and drafting of transaction documents, participating in negotiations to address diversified interests of all parties, and successfully co-ordinating all the parties for contract signing.
Huatai Asset Management’s perpetual bond financing for COMAC’s large-plane project
CATEGORIES: Debt capital market; Aviation
LEGAL COUNSEL: Tian Yuan Law Firm acted as legal counsel to Huatai Asset Management.
KEY POINTS: To provide funding for the “large-plane” project with insurance capital, Huatai Asset Management and Commercial Aircraft Corporation of China (COMAC) established a debt investment scheme, under which RMB15 billion was raised for COMAC through issuance of perpetual bonds.
In August 2017, Insurance Asset Management Association of China (IAMAC) consented to the registration of Huatai-COMAC debt investment scheme. Tian Yuan says the scheme was important and unprecedented. Being one of the most efficient projects in passing the registration procedure of IAMAC, it is also to date the only insurance asset management scheme that involved confidential defence industry elements.
JD Finance’s new round financing
CATEGORIES: Private equity; TMT
LEGAL COUNSEL: In this new-round financing of JD Finance, Guantao Law Firm advised China Minsheng Trust, Han Kun Law Offices represented China Structural Reform Fund (CCT Fund), and Shihui Partners represented Suqian Donghe Shengrong Equity Investment Partnership (Limited Partnership).
KEY POINTS: The related party of China Minsheng Trust set up the first-level fund Zhaohe Minxin (Shenzhen) Equity Investment Partnership (Limited Partnership) as the limited partner, with Shenzhen Qianhai Hongzhao Fund Management as the general partner. The first-level fund subscribed the limited partner shares of Suqian Donghe Shengrong Equity Investment Partnership, the second-level fund. The second-level fund participated in the new-round financing of JD Finance.
In this transaction, Guantao Law Firm assisted its clients in setting up a two-level fund structure. As this investment is indirect, according to Guantao, the firm needed to assist the client in controlling the risks incurred during the direct investment between the second-level fund and JD Finance, the subject matter.
CCT Fund invested in Donghe Shengrong as a limited partner. In this transaction, Han Kun Law Offices assisted the CCT Fund to design the structure of Donghe Shengrong, a special purpose vehicle holding equity interest in JD Finance, to draft and negotiate the limited partners agreement and other transaction documents, and to conduct legal due diligence on JD Finance.
Joint venture between Schmolz + Bickenbach and Tsingshan Holding Group
CATEGORIES: Joint venture; Foreign direct investment
LEGAL COUNSEL: Broad & Bright provided full spectrum PRC legal advice for Schmolz + Bickenbach (S+B).
KEY POINTS: S+B and Tsingshan Holding Group, world leaders in the stainless steel industry, formed their first joint venture company in China, which is 60% owned by S+B and 40% owned by Tsingshan. According to Broad & Bright, by creating the joint venture, S+B and Tsingshan share the common ambition of further growth in the domestic stainless long steel market. The combination of S+B’s technical knowhow with Tsingshan’s strong market position in China creates a world-class supplier of special bright bars that is able to meet growing demand in the region.
The target company used to be invested by several individuals and had relevant inter-company loans from the shareholders. To structure the deal on a cash-free and debt-free basis, an internal restructuring of the target company was proposed to buy out the individual shareholder’s shares, as well as to convert the debt into the equity of the company with respect to the inter-company loans, according to Broad & Bright.
As a joint venture between a European enterprise and a traditional Chinese private company, there was culture shock between the two partners from legal and commercial perspectives. Broad & Bright says its team managed not only to provide professional legal services but also to bridge the cultural differences.
Maoyan Media and Weiying Technology strategic partnership transactions
CATEGORIES: M&A; Internet
LEGAL COUNSEL: Commerce & Finance provided legal services for Maoyan Media. Han Kun Law Offices advised Tencent, the major shareholder of Weiying Technology.
KEY POINTS: Both Maoyan and Weiying were leading online movie and performance ticketing platforms in China. As the major shareholder of Weiying, Tencent participated in the merger of the two companies and concluded a comprehensive strategic collaboration with the new Maoyan-Weiying.
Han Kun says with the market capitalization of the new Maoyan-Weiying after the merger reaching about RMB13.6 billion, it was one of the most important M&A transactions between internet giants in 2017. The legal services that Han Kun provided included due diligence and deal structuring, as well as drafting, reviewing, revising and finalizing the transaction documents.
Commerce & Finance says the deal had to be structured to align interests between Maoyan, Weiying and Tencent while taking into account the interests of many existing shareholders, since it involved three components – restructuring within Weiying, merger via equity swap, and investment by Tencent.
Commerce & Finance advised Maoyan on an innovative solution that addressed a series of legal and commercial issues. For example, Commerce & Finance says that the deal structure was very sophisticated and the co-ordination was challenging because the deal involved: information disclosure and regulatory compliance of Enlight Media, one of Maoyan’s shareholders and an A-share company; internal approval process for shareholders under the VIE framework and for Tencent, a Hong Kong-listed company; also, valuation of interfaces with WeChat and other resources, and relevant commercial arrangements.
The deal also came under the spotlight because it was priced with net working capital as of the closing date. Commerce & Finance says it designed the solution innovatively to enable two offerings for a single deal, which perfectly solved problems relating to transaction pricing and subsequent risk control.
MoFang Apartment trust beneficial rights asset-backed special programme
CATEGORIES: Asset securitization; Real estate
LEGAL COUNSEL: Global Law Office was legal counsel to the issuer.
KEY POINTS: MoFang Apartment was the first chain operator of long-term rental apartments in China. According to Global Law, as the first securitization scheme in the apartment industry in China, MoFang Apartment’s asset-backed securities reflected how asset securitization served the real economy. Contributing to financial innovation, schemes of this type allow asset-light apartment operators to have greater access to capital markets.
Global Law says that MoFang Apartment’s asset-backed securities used a structure consisting of two special purpose vehicles (SPVs) underpinned by “a special programme plus trust beneficial rights”. The underlying asset of the programme, with a size of RMB350 million, was the rental income of the next three years from 4,014 apartments in 30 properties owned by MoFang. Global Law succeeded in helping all senior securities of MoFang achieve AAA rating with several internal and external credit enhancement arrangements that included separating the issue into tranches, cash flow assessment and excess coverage, triggering of additional pledges, and provision of warranties and guarantees.
Shenzhen Dragonball Hospital’s debt restructuring
CATEGORIES: Non-performing loans; Medical industry
LEGAL COUNSEL: JunZeJun Law Offices and Reed Smith acted for the acquirer, China Regenerative Medicine International, as PRC and Hong Kong counsel, respectively.
KEY POINTS: Through the legal due diligence of Shenzhen Dragonball Hospital (SDH) and its non-performing loans’ (NPL) transfer process, JunZeJun assisted the client in the design of the transaction’s legal structure, after considering SDH’s numerous potential acquirers and communicating with SDH’s original shareholders. The structure contained a two-step strategy, acquiring SDH’s NPL as the first step, which allowed its client to occupy a dominant position among all the potential acquirers on the basis of controllable risk and realizable intent.
Wu Lixin, the lead partner of the JunZeJun team, says this deal involved a variety of regulations and policies including domestic and foreign investment, debt investment, NPL purchase, exchange control, tax planning, and supervision of medical institutions. The acquirer, a Hong Kong-listed company, was also required to comply with the Hong Kong capital market rules on regulation and information disclosure.
Zhejiang Nanyang Technology’s major asset reorganization
CATEGORIES: Restructuring; Capital markets
LEGAL COUNSEL: Jia Yuan Law Offices advised Zhejiang Nanyang Technology.
KEY POINTS: The transaction helped China Academy of Aerospace Aerodynamics (CAAA) acquire a controlling stake in Zhejiang Nanyang Technology, a listed company, and enabled the listing of CAAA’s unmanned aerial vehicle division, which was the core asset of CAAA.
Jia Yuan says that the toughest challenge the firm faced in designing the deal structure arose from a lack of clear legal provisions concerning ownership reform of public institutions, as the counterparty to the restructuring deal was a military public institution. The firm had to ensure that the restructuring would allow assets of the public institution to be injected into the listed company in a manner consistent with compliance requirements observed by listed companies. Jia Yuan assisted CAAA’s military assets in meeting the condition precedent of being injected into the listed company through a corporate reform enabled via internal integration and restructuring.
Since the assets to be injected were of a scale comparable to back-door listing criteria as prescribed in policies concerning restructuring, several in-depth inquiries about the deal structure were received from securities regulators. Jia Yuan assisted the parties concerned in gaining consent from the regulators through interpretation of the “back-door listing” policies and explanation as to the reasonableness of the deal structure.
Jia Yuan says the deal will be helpful for future similar transactions in two ways: (1) in relation to listing of military assets of public institutions through restructuring, how to select the appropriate approach to listing, defining boundaries and establishing operation process; and (2) how to properly interpret the “back-door listing” policies.
Beijing Gas Group acquires 20% stake in Russia’s VCNG
CATEGORIES: Overseas M&A; Energy
LEGAL COUNSEL: East & Concord Partners and Herbert Smith Freehills served as PRC legal counsel and international legal counsel, respectively, for acquirer Beijing Gas Group. Allen & Overy and JunHe served as international legal counsel and PRC legal counsel, respectively, for the joint underwriters in the bond offering. Linklaters was also involved in the deal.
KEY POINTS: The Beijing Gas Group purchased about 20% of the shares in Verkhnechonskneftegaz (VCNG) from Rosneft for about US$1.12 billion. The target company, VCNG, holds a valid reserve utilization permit for an oilfield at Irkutsk Oblast, in the Russian Federation.
East & Concord says the deal was in keeping with the Belt and Road initiative, and a new milestone in the energy conversation between China and Russia. The project will enhance the Chinese capital’s natural gas supply capacity and strengthen the capacity to ensure natural gas supply in the regions of Beijing, Tianjin and Hebei.
East & Concord was required to conduct legal due diligence of VCNG, and as its main business is oilfield development, a review of a large volume of qualification documents was involved. The transaction also involved numerous prior Chinese and Russian approvals, and an anti-monopoly filing in China. East & Concord says the Ministry of Commerce had never conducted an anti-monopoly review of such a deal in the past.
Because the target company was a foreign public company, the existing articles of association of the company could not effectively protect the rights and interests of Beijing Gas as a minor shareholder of 20% of the stake. Accordingly, East & Concord raised suggestions in respect of the governance structure of the company, endeavouring to secure shareholder rights and interests for the acquirer to the greatest extent permissible under the law of Russia.
BOC issues China green covered bonds
CATEGORIES: Debt capital market; Green bonds
LEGAL COUNSEL: JunZeJun Law Offices and Linklaters acted as PRC counsel and international counsel, respectively, to Bank of China (BOC). Clifford Chance and Jingtian & Gongcheng acted as international and PRC counsel, respectively, to the lead underwriter.
KEY POINTS: These have been the first green bonds issued by a Chinese entity in the international market and secured by onshore assets within China. These bonds are secured on a portfolio of climate-related bonds that are held by BOC and traded in China’s interbank bond market.
JunZeJun Law Offices set up the legal structure for the onshore security and enforcement of the bonds in China, and arranged China Central Depository & Clearing Co (CCDC) as the asset monitor and enforcement agent of this transaction. According to JunZeJun, prior to this transaction no self-help remedy was available in relation to enforcement of pledged bonds that are deposited with CCDC, while in this offering CCDC adopted a pre-authorization approach for the first time to allow the pledgee to enforce the pledge efficiently.
Another eye-catching aspect of the deal is that as a result of the credit enhancement, BOC will be able to achieve a bond rating of Aa3 by Moody’s, the same as the sovereign rating of China and one notch higher than Bank of China’s own credit rating of A1. JunZeJun says this was the first time that Moody’s had granted BOC bonds a credit rating equal to the sovereign rating of China.
JunZeJun Law Offices conducted due diligence on BOC in this deal, set up the legal structure for the onshore security and enforcement of the bonds and draft pledge agreement with respect to the secured property onshore, and issued PRC legal opinions.
BOCOM International’s Hong Kong IPO
CATEGORIES: Equity capital market; Overseas listing
LEGAL COUNSEL: King & Wood Mallesons served as PRC legal counsel for the issuer, BOCOM International Holdings; Freshfields Bruckhaus Deringer and Maples and Calder served as the issuer’s foreign lawyers. Clifford Chance served as Hong Kong and US legal counsel to the co-sponsors and underwriters, and JunHe was domestic legal counsel to the underwriters.
KEY POINTS: BOCOM International officially listed and began trading on the main board of the Stock Exchange of Hong Kong (HKEx) in May 2017, and on 14 June further offered excess rights shares, becoming the first wholly Hong Kong-listed securities house affiliated to a Chinese-owned bank. JunHe says this deal was complex, requiring the spin-off of the securities company (i.e., BOCOM International) – established and operated in Hong Kong by the A+H share-listed company Bank of Communications (BOCOM) – and then its listing in Hong Kong. Structurally speaking, this was a red chip offshore listing, and, as BOCOM International has assets in China, required a demonstration of the applicability of the red chip guidelines.
JunHe also says the spin-off of BOCOM International needed to simultaneously satisfy relevant conditions of document No. 67 of the China Securities Regulatory Commission (CSRC) concerning the spinning off and then overseas listing by a domestically listed company of its subsidiary, as well as relevant conditions of practice note 15 of HKEx on the spinning off and then separate listing by a Hong Kong-listed company of its subsidiary. The consistency in the listed company’s overseas and domestic information disclosure also had to be maintained.
JunHe assisted the sponsors and issuer in liaising with BOCOM’s head office, the China Banking Regulatory Commission (CBRC), the CSRC and HKEx, securing the approval of those regulators for the spin-off plan, and also securing a no action letter from the CSRC. King & Wood Mallesons was also involved in the entire spin-off and listing process, representing BOCOM in liaising with BOCOM International and such regulators as the CBRC, CSRC, etc.
CEXIM sets up overseas EFP programme
CATEGORIES: Debt capital market; Overseas financing
LEGAL COUNSEL: Haiwen & Partners and Linklaters acted as PRC counsel and foreign counsel to the underwriters, respectively. Commerce & Finance Law Offices and Sidley Austin served as the issuer’s PRC counsel and foreign counsel, respectively.
KEY POINTS: The Exim Funding Programme (EFP) established by the Export-Import Bank of China (CEXIM) was the first financing project established by a Chinese-owned issuer that simultaneously encompassed short-term, medium-term and long-term bonds.
Haiwen says the EFP encompassed foreign currency-denominated short-term commercial notes and medium and long-term notes. The issuer may, depending on its funding needs and international market conditions, use a variety of different financing methods, giving it a great amount of flexibility. Additionally, as the major terms relating to offerings were included in the EFP transaction documents, the issuer was only required to add the special terms for a relevant offering at the time of each specific offering, making the same very convenient.
According to Haiwen, the offering of €550 million (US$672 million) of five-year fixed-rate bonds and US$300 million of three-year floating rate bonds by the head office of CEXIM and its Paris branch were the first offerings under the EFP. That they could be completed within a short period of time was largely due to use of the EFP.
China Hongqiao’s Indonesia refinery development and financing
CATEGORIES: Overseas investment; Natural resources
LEGAL COUNSEL: Orrick Herrington & Sutcliffe acted as international counsel to the project sponsors. Ashurst and Oentoeng Suria & Partners acted as international counsel and Indonesian counsel, respectively, to the lenders. JunHe and Walkers were PRC counsel and Cayman Islands counsel, respectively, to the lenders. Soewito Suhardiman Eddymurthy Kardono (SSEK) served as Indonesian counsel to the borrower.
KEY POINTS: Orrick advised China Hongqiao Group, Cita Mineral Investindo and Winning International Group, as sponsors, on the development, construction and financing of an alumina refinery with a capacity of one million metric tons per year, including a captive thermal power plant and associated facilities in Indonesia.
According to Orrick, this was the first big Chinese-invested alumina refinery development and financing in Indonesia, and one of the more complex projects with some unusual and unique features.
The international law firm also says that the limited recourse financing of alumina refining involved a high volume of work in customizing various product and offtake agreements, construction support agreements and sponsor support arrangements in order to address issues such as risk mitigation and alumina pricing, which are rare to see in the market for similar projects, and without relevant precedents to follow.
China Molybdenum acquires mineral assets in Brazil, Congo
CATEGORIES: Overseas M&A; Natural resources
LEGAL COUNSEL: Llinks Law Offices advised China Molybdenum on its non-public issuance of A-shares for funding its acquisition of Anglo American’s niobium and phosphorus business assets in Brazil, as well as its acquisition of Freeport-McMoRan’s copper and cobalt transaction business assets in Congo. YTL & CO advised China Molybdenum in both deals with regard to disclosure in the H-share market.
Osler Hoskin & Harcourt also acted for China Molybdenum in both of the transactions, advising on M&A and related legal issues.
In the purchase of Anglo American’s assets, King & Wood Mallesons advised China Molybdenum, and Pinheiro Neto Advogados acted as Brazilian counsel to China Molybdenum. Linklaters acted as Anglo American’s legal counsel. Lobo & Ibeas Advogados was the seller’s lawyer in Brazil, and Reed Smith was the seller’s lawyer in the US.
In the purchase of Freeport-McMoRan’s assets, Etude Kabinda acted as Congo counsel for China Molybdenum. Conyers Dill & Pearman acted as Freeport-McMoRan’s Bermuda counsel.
KEY POINTS: China Molybdenum finished its fundraising by issuing non-public shares to complete its acquisition of Anglo American’s niobium and phosphorus business in Brazil and Freeport-McMoRan’s copper and cobalt business in Congo.
Llinks says the transactions involved high value and volume. China Molybdenum needed to pay a total consideration of RMB27.5 billion (US$4.2 billion) for these overseas acquisitions, with RMB11 billion from its owning capital source and the other RMB16.5 billion borrowed from banks. At the same time, the company raised no more than RMB18 billion by issuing non-public shares to exchange the previously invested self-raised funds.
The Chinese law firms say the deals were complicated and involved a broad range of issues. The acquisition by China Molybdenum of target assets in Brazil and Congo not only needed to be approved by, or filed with, Chinese regulators such as the National Development and Reform Commission, Ministry of Commerce and State Administration of Foreign Exchange, but also needed clearance in other countries or regions such as South Africa, Turkey, Zambia and Bermuda.
The transactions also faced time pressures. The overseas acquisitions and the non-public share issuance were carried out almost simultaneously, and the whole process took about eight months.
China Oceanwide’s acquisition of IDG
CATEGORIES: Overseas M&A; CFIUS approval
LEGAL COUNSEL: Jia Yuan Law Offices acted as domestic counsel to China Oceanwide Holdings Group. Ropes & Gray was the foreign legal adviser to China Oceanwide, while Davis Polk & Wardwell acted for IDG Capital. Akin Gump Strauss Hauer & Feld was also involved in the transaction.
KEY POINTS: China Oceanwide and IDG Capital announced in January 2017 that they would fully acquire the major assets of International Data Group (IDG) including its data services, IDG Communications’ media business and IDG Ventures’ investment business. The controlling stakes of IDG’s data services and IDG Communications’ media business were acquired by China Oceanwide, while the control of IDG Ventures’ investment business was obtained by IDG Capital. The transaction was approved by the Committee on Foreign Investment in the United States (CFIUS), and was closed in March 2017.
IDG is the world’s leading technology media, data and marketing services company with a high reputation in the information industry. Jia Yuan says the transaction involved both domestic and overseas capital assets, and involved the information technology and media industries, which required complicated due diligence, formulation of the deal structure, negotiation, as well as domestic and overseas review and approval procedures (including CFIUS approval, record-filing with China’s Ministry of Commerce, National Development and Reform Commission, foreign exchange registrations, etc.).
Ropes & Gray says that multiple challenges were faced in this outbound transaction, including: (1) a complex buyer consortium; (2) national security concerns of CFIUS; (3) restrictions on foreign investments from China; and (4) uncertainties over whether the deal would close due to the change in the US administration.
Ropes & Gray developed an innovative and complex deal structure that involved two simultaneous transactions involving two separate parts of IDG and two separate consortia, each with different interests.
The fact that the relevant parties of the transaction were in different locations also increased the complexity of the transaction. According to Ropes & Gray, the client was located in China, the seller in Boston, and Ropes & Gray had multiple lawyers from offices across the globe and varied practice groups working together on the deal.
CITIC Bank acquires Kazakhstan’s Altyn Bank
CATEGORIES: Overseas M&A; Banking
LEGAL COUNSEL: Grata International and Clifford Chance advised CITIC Bank. Linklaters acted for the seller.
KEY POINTS: This transaction has been one of the largest bank M&A transactions with the involvement of foreign investment in Kazakhstan. CITIC Bank intended to acquire a controlling stake of 60% in Altyn Bank, a Kazakh bank 100% owned by Halyk Bank, another Kazakh bank.
According to Grata International, the transaction involved the obtainment of various state approvals from Chinese and Kazakh state authorities, including the consents of the National Bank of Kazakhstan and the Antimonopoly Committee of Kazakhstan.
CNMC’s investment in African copper mine
CATEGORIES: Overseas investment; Natural resources; PPP
LEGAL COUNSEL: Zhong Lun Law Firm was the lead counsel in this project advising China Nonferrous Metal Mining Group (CNMC). Emery Mukendi Wafwana & Associates acted for CNMC as the local counsel. Orrick Herrington & Sutcliffe advised the local company.
KEY POINTS: According to Zhong Lun, the local government weighs tight controls on foreign companies holding mineral resources, and is more inclined to introduce technologically advanced and well-funded foreign companies. It was under such a background that CNMC was granted this project.
The project adopted a public-private partnership (PPP), under which CNMC would form a joint venture with a local company. CNMC will finance, build, and operate the whole project for a period. Upon the entire loan being totally reimbursed and a reasonable profit being achieved by the CNMC, the shares held by the Chinese investor will be transferred to the local company for free.
Zhong Lun says the fact that the foreign investor, after realization of reasonable profits, would return all its shares, or the whole project, to the local party enabled a developing country to keep its natural resources and obtain operational facilities. Compared with the classic mode in which investors will acquire mining rights and own and operate the whole project until exhaustion of the mine, the PPP mode in this project is innovative around the world.
CNNP’s UK-China R&D joint venture
CATEGORIES: Joint venture; Energy
LEGAL COUNSEL: Eversheds acted as legal adviser to China National Nuclear Power (CNNP), while Addleshaw Goddard acted for National Nuclear Laboratory (NNL).
KEY POINTS: Eversheds advised CNNP on the UK-China Nuclear Joint Research and Innovation Centre (JRIC), a 50-50 R&D joint venture with NNL. The JRIC is China’s first nuclear energy joint research and innovation centre with a Western country. Eversheds says this has ushered in a new era based on investment into nuclear power.
Eversheds’ legal advice covered all aspects of the establishment of the JRIC. According to the law firm, the deal involved not only extensive negotiations with NNL and UK’s Department for Business, Energy and Industrial Strategy in relation to a set of joint venture and funding agreements, but also comprehensive state aid analysis as part of the JRIC’s funding came from public sources.
CNPC International’s participation in Iranian gasfield
CATEGORY: Energy & natural resources
LEGAL COUNSEL: Herbert Smith Freehills was sole counsel to CNPC International, a subsidiary of China National Petroleum Corporation.
KEY POINTS: Herbert Smith Freehills advised CNPC International (CNPCI) on its proposed participation in the South Pars Block Phase 11 in Iran. South Pars Phase 11 is part of the massive South Pars gasfield. CNPCI and Iran’s local company, Petropars, will be members of the consortium in developing this project.
According to Herbert Smith Freehills, this deal has been Iran’s first natural gas development project with international oil companies since sanctions on the country were eased. It is also Iran’s first major deal under its new integrated petroleum contract (IPC) model, and the first investment made by a Chinese oil and gas state-owned enterprise into Iran after sanctions were eased.
The project is worth about US$4.8 billion. The involved jurisdictions include China, France, Iran and the UK.
CNPC takes 8% stake in Abu Dhabi oil concession
CATEGORY: Energy and natural resources; Belt and Road
LEGAL COUNSEL: Eversheds Sutherland was the legal adviser to China National Petroleum Corporation (CNPC).
KEY POINTS: CNPC and Abu Dhabi National Oil Company (ADNOC) signed an agreement to award CNPC International, a wholly owned subsidiary of CNPC, an 8% stake in the 40-year Abu Dhabi Company for Onshore Petroleum Operations (ADCO) concession. ADNOC holds a 60% stake of the concession and invited a shortlist of leading foreign oil companies to bid for stakes within the remaining 40%.
Eversheds Sutherland’s Beijing managing partner, Ingrid Zhu-Clark, says this was a sophisticated, world-class transaction. “The Abu Dhabi concession deal is one of the largest overseas investments made by CNPC in recent years and is of great importance in CNPC’s global strategy.”
Greg Hammond, a partner at Eversheds Sutherland in London, told China Business Law Journal in an earlier news report that the transaction was important for the China market because it would provide access to a secure and sizeable supply of high-quality crude oil over a 40-year period. It could also be expected to enhance China’s influence with, and trade into, the UAE, a key political and commercial power in the Persian Gulf region.
Colombo Port City Project in Sri Lanka
CATEGORIES: Infrastructure; Belt and Road
LEGAL COUNSEL: Pinsent Masons acted for China Harbour Engineering Company. Baker McKenzie was also involved in this deal.
KEY POINTS: The Colombo Port City Project, now renamed the Colombo International Finance City, is the largest inward investment project in Sri Lanka to date, according to Pinsent Masons.
During the process, the project suffered a suspension after a change of government in Sri Lanka. Pinsent Masons supported China Harbour throughout the development and negotiation of the concession agreement and the finance documents, the subsequent suspension, and the successful renegotiation of the concession agreement and restart of construction.
China Development Bank provided US$800 million in project finance. Pinsent Masons reviewed and revised the finance documents and security documents, and conducted negotiations with the lender.
COSCO acquires 51% stake in Noatum Port Holdings
CATEGORY: Overseas M&A; Belt and Road; Shipping
LEGAL COUNSEL: Slaughter and May advised COSCO SHIPPING Ports on English and Hong Kong law. KA-Legal advised COSCO SHIPPING Ports on competition law.
Uría Menéndez advised COSCO SHIPPING Ports and JP Morgan on Spanish law. Clifford Chance advised JP Morgan on English law. Allen & Overy advised JP Morgan on competition law.
KEY POINTS: COSCO Shipping Ports acquired a 51% stake of Noatum Port Holdings from TPIH Iberia, a vehicle invested by funds managed by JP Morgan Global Alternatives (67%) and APG Asset Management (33%).
Slaughter and May worked with Uría Menéndez, coming up with innovative solutions to issues presented by the transaction, including: facilitating the negotiation of the transaction documents in light of the proposed restructuring of the Noatum Port Holdings’ group between signing and completion, which involved the carving out of certain companies from the target group; obtaining a waiver from the Hong Kong Stock Exchange for the inclusion of an accountants’ report in the shareholder circular, which was prepared by non-Hong Kong qualified accounts; and facilitating the obtaining of clearance from the port authorities of Valencia and Bilbao in respect of the transaction.
Uría Menéndez says this transaction represents a clear example of Belt and Road investment. As disclosed by COSCO Shipping Ports in its filings with Hong Kong Stock Exchange, with this acquisition the shipping company furthered its efforts in extending its networks over the Mediterranean and European areas.
COSCO SHIPPING’s acquisition of Orient Overseas
CATEGORIES: Overseas M&A; Shipping
LEGAL COUNSEL: Paul Hastings represented COSCO SHIPPING Holdings. Slaughter and May advised Orient Overseas (International). Kirkland & Ellis acted for UBS, the financial adviser of COSCO.
KEY POINTS: The wholly owned subsidiaries of COSCO SHIPPING Holdings and Shanghai International Port (Group) made a cash offer for all the issued shares of Orient Overseas for a total value of about US$6.3 billion, pursuant to the Hong Kong Takeovers Code. The transaction also constituted a very substantial acquisition by COSCO SHIPPING Holdings under the Hong Kong listing rules.
COSCO SHIPPING Holdings is the world’s fourth-largest container shipping company and Orient Overseas is the world’s seventh-largest. The acquisition marked one of the largest M&A deals in the global maritime industry in 2017, according to Paul Hastings.
Paul Hastings says that COSCO SHIPPING Holdings will finance its consideration for the transaction through external debt financing, and the transaction is subject to certain preconditions, including various regulatory reviews and approvals, and shareholder approval of COSCO SHIPPING Holdings.
CSIC Leasing’s ship lease financing
CATEGORY: Financial leasing; Shipping
LEGAL COUNSEL: Watson Farley & Williams advised CSIC Leasing. Mourant Ozannes acted as British Virgin Islands counsel.
KEY POINTS: Watson Farley & Williams advised CSIC Leasing on a US$65.5 million sale and leaseback transaction with Eletson Corporation, a Greek tanker owner and operator.
Subsidiaries of CSIC Leasing acquired four second-hand, long-range product tankers from the subsidiaries of Eletson, with the sale proceeds used to refinance the balloon payment under certain loan facilities of the Eletson group secured on those vessels. The acquired vessels were then leased back on delivery to Eletson under agreed financial lease arrangements. Additionally, CSIC Leasing provided, through one of its affiliated companies, a working capital loan to Eletson as part of the refinancing process.
According to Watson Farley & Williams, this is CSIC Leasing’s first lease financing transaction and a milestone for the company in expanding its shipping portfolio and establishing long-term relationships with key players in the industry. The law firm adds that this is also an important transaction for Eletson as it demonstrates that seeking finance from Asian sources is now a norm for Western ship owners.
The deal was completed under challenging and complicated closing conditions, which required careful negotiation and co-ordination due to the intricate relationships of the parties involved, says Watson Farley & Williams.
Dasin Retail Trust’s Singapore IPO
CATEGORIES: Equity capital market; Overseas listing; Real estate
LEGAL COUNSEL: JunZeJun Law Offices was PRC legal counsel and WongPartnership acted as Singapore counsel for the issuer, Dasin Retail Trust. Allen & Gledhill, King & Wood Mallesons and Slaughter and May advised DBS and other joint bookrunners and underwriters in this IPO.
KEY POINTS: Dasin Retail Trust is the first pure play China retail business trust listed on the Singapore Exchange to be sponsored by a China-based group. The sponsor is Zhongshan Dasin Real Estate, one of the top real estate developers in Zhongshan, Guangdong province.
Dasin Retail Trust, through its trustee manager, entered into an agreement for syndicated offshore loan facilities. According to Allen & Gledhill, the IPO loan financing was split between onshore and offshore loan facilities, and the proceeds from the offshore loan facilities were partly on-lent to purchase three retail malls in China.
These properties were injected into Dasin Retail Trust upon its listing on the Singapore Exchange, and a fourth retail mall would be injected into Dasin Retail Trust within six months after the listing as a condition subsequent to the offshore loan facilities. Allen & Gledhill says an inter-creditor deed was entered into between the onshore and offshore parties to regulate various matters including enforcement of onshore and offshore security.
Development, financing of Hub power plant in Pakistan
CATEGORY: Infrastructure; Belt and Road
LEGAL COUNSEL: Linklaters acted for the lenders (China Development Bank, The Export-Import Bank of China, etc.) on the development and financing of this project. JunHe was the lenders’ PRC counsel.
KEY POINTS: The project is jointly developed by a Chinese state-owned enterprise and one of the largest private companies in Pakistan. Linklaters says the project is part of a series of high-profile Chinese-invested energy projects under the Belt and Road initiative. It is expected to increase the energy supply of Pakistan by 20% and is of strategic importance locally.
According to Linklaters, the project had a complex construction documents structure for the power station and a coal jetty, with relatively high working capital funding needs. A number of innovative approaches were required to accommodate the large-scale and different financing needs of the project, including: (1) bespoke sponsor support arrangements to address different risk appetites of each of the sponsors, and risks posted to the lenders; (2) a complex security interest package and sharing structure among the term loan lenders, working capital lenders and other ancillary financiers of the project; and (3) mechanisms in the financing documents to address construction risks.
Financing of Caculo Cabaca hydropower project
CATEGORIES: Overseas investment; Power infrastructure
LEGAL COUNSEL: Ashurst advised the syndicate of lenders, including Industrial and Commercial Bank of China (ICBC) and other Chinese financial institutions. JunHe was PRC legal counsel to the lenders. CM Advogados acted as Angolan legal counsel for ICBC. Norton Rose Fulbright was international counsel to the borrower.
KEY POINTS: The syndicate of lenders provided a term loan facility of more than US$4 billion to the Republic of Angola to finance the construction of the Caculo Cabaca hydroelectric power project with an installed capacity of more than 2,100MW.
According to Ashurst, this project was a key part of the phased water resource development projects on the Kwanza River, and expected to significantly contribute to the power supply security of Angola and nearby countries. This is one of the most important power projects in this African country that will drastically improve its ability to develop its economy. The project’s construction will be undertaken by a consortium led by China Gezhouba Group Company and Boreal Investments.
Financing of Minsheng’s Airbus aircraft purchase
CATEGORY: Aircraft financing
LEGAL COUNSEL: In the financing of the two A380 aircraft, Ince & Co advised the Export-Import Bank of China (CEXIM) as lead transaction counsel. DeHeng Law Offices was PRC counsel, Lee & Ko was Korean counsel, and Mason Heyes & Curran was Irish counsel to CEXIM.
Minsheng Financial Leasing hired HFW as English counsel, A&L Goodbody as Irish counsel, Kim & Chang as Korean counsel and Dentons as PRC counsel. Lessee Asiana Airlines’ legal counsel was Milbank Tweed Hadley & McCloy.
In a corresponding transaction, the financing of four A320 aircraft, Dentons was PRC counsel and King & Wood Mallesons was English counsel advising Minsheng Financial Leasing and its Ireland-registered subsidiary, Bluesky 26 Leasing Company.
A&L Goodbody and AZB & Partners advised Bluesky 26 as Irish and Indian counsel, respectively. Watson Farley & Williams was English counsel and Rui Bai Law Firm was PRC counsel to Crédit Agricole CIB (CA-CIB).
KEY POINTS: CEXIM provided US$450 million financing for two Airbus A380 aircraft purchased by Minsheng Financial Leasing and leased to Asiana Airlines. According to Ince & Co, this transaction involved a complicated cross-collateralized structure and a set of finance and security documents governed by English law, PRC law, Irish law and the law of South Korea.
Ince & Co says the transaction represented the first A380 financing by CEXIM. Lee & Ko says it was the first major CEXIM-backed financing for aircraft leased to a South Korea-based international airline.
Minsheng Financial Leasing, through Bluesky 26 Leasing Company, also purchased four Airbus A320 aircraft. CA-CIB and Korea Development Bank provided financing for this purchase, while Bluesky 26 was the borrower.
Dentons says the transaction involved many jurisdictions including China, France, Ireland, South Korea, India and the US. Various guarantee and credit enhancement methods were also provided, such as aircraft mortgage, cash collateral, security assignment, share charge, account pledge, warranty assignment, insurance assignment, etc. Parties to the transaction signed a large number of core agreements and supporting documents to safeguard the rights and interests of the banks, the borrower, the aircraft manufacturer and the airline.
ICBC issues ‘Belt and Road’ climate bonds
CATEGORY: Debt capital market; Belt and Road
LEGAL COUNSEL: Linklaters and JunHe served as international counsel and PRC counsel, respectively, to the Industrial and Commercial Bank of China (ICBC). Allen & Overy and King & Wood Mallesons served as international counsel and PRC counsel, respectively, to the underwriters.
KEY POINTS: The Luxembourg branch of ICBC completed its overseas offering of “Belt and Road” climate bonds in October 2017, raising US$2.15 billion in proceeds. The climate bonds were divided into three tranches, encompassing US dollars and euros, which would be used to support on a global scale four types of environmentally friendly projects that ICBC had financed or would soon finance – namely, projects related to renewable energy, low carbon and low emission transport, energy efficiency and sustainable water resource management.
King & Wood Mallesons says the issuance set five records: (1) the “ICBC green bond framework” was the first framework that simultaneously met the most recent international and domestic criteria for green bonds; (2) this was the first framework of a Chinese issuer to secure a second opinion of the Centre for International Climate and Environmental Research (CICERO) in Oslo, making ICBC the only Chinese issuer to date to receive the CICERO “dark green” certification (“second opinion” refers to certification by an independent institution of the “green” features of the use orientation of the issuance proceeds); (3) this was the first instance of climate bonds that had been certified with regard to a Chinese financial institution’s climate bond standards; (4) these were the first green bonds that featured environmentally friendly projects along the Belt and Road; and (5) this was the largest single offering of Chinese-funded green bonds denominated in euros.
Intime Retail’s privatization
CATEGORY: Privatization; Retail
LEGAL COUNSEL: Davis Polk & Wardwell advised Intime Retail (Group) Company on Hong Kong law. Maples and Calder acted as Cayman Islands counsel to Intime Retail.
Morgan Lewis & Bockius, and Luk & Partners, acted for Intime International Holdings, one of the joint offerors. Slaughter and May advised Alibaba Group, the other joint offeror.
KEY POINTS: The US$2.55 billion Intime Retail’s privatization project represented the single-largest shareholder, Alibaba’s, first venture into brick-and-mortar retail to achieve its strategic goal of integrating online and offline shopping, says Morgan Lewis. Maples and Calder says this transaction allowed Alibaba to explore ways to modernize an industry that had not adapted well to the growing popularity of online shopping.
Headquartered in Beijing, Intime Retail, a leading department store operator, is a Cayman-incorporated company listed on the Hong Kong Stock Exchange.
The privatization involved a consortium between Alibaba Investment, a wholly owned subsidiary of Alibaba Group, and Intime International as joint offerors. The rollover arrangement regarding the shares held by the CEO of Intime Retail constituted a special deal under the Hong Kong Takeovers Code.
According to Maples and Calder, the privatization was conducted by way of scheme of arrangement under section 86 of the Companies Law of the Cayman Islands.
In order to accommodate the financing requirements of this privatization and the relevant consortium agreement, and compliance with the Hong Kong Takeovers Code, Morgan Lewis advised Intime International on its financing facilities obtained from Deutsche Bank for the purpose of financing the privatization and refinancing its pre-existing indebtedness.
Morgan Lewis says the range and complexity of the legal issues to this privatization project were almost unlimited. Due to its multi-jurisdictional nature involving Hong Kong, mainland China and Cayman Islands, Morgan Lewis handled numerous legal and commercial considerations related to the deal, in parallel with the negotiation and documentation of the debt transaction, which added to the deal’s complexity.
Kaisa Group’ exchange offer and new issuance
CATEGORY: Debt capital market; Real estate
LEGAL COUNSEL: Sidley Austin advised Kaisa Group Holdings on US and Hong Kong law. Harney Westwood & Riegels advised Kaisa Group on Cayman Islands and British Virgin Islands law, while Jia Yuan Law Offices acted as PRC counsel.
Shearman & Sterling was US counsel and Commerce & Finance Law Offices was PRC counsel to the underwriters of the new issued notes. Mayer Brown JSM was the trustee’s counsel.
KEY POINTS: Kaisa Group Holdings made an exchange offer for its existing series A, B, C, D and E notes into senior notes, and its concurrent issuance of new senior notes. Kaisa Group is a Chinese property developer primarily engaged in the development of large-scale residential properties and integrated commercial properties.
Sidley Austin says that the deal’s key features included: (1) new notes exchanged for the old notes, structured to extend the tenor of the existing notes; (2) cash consideration to sweeten the deal for existing holders and to encourage participation; (3) indication by the company of an intention to call the existing notes, in order to encourage more holders to participate; and (4) the exchange offer was offered outside the US to non-US holders so that US tender offer rules did not apply.
Eligible existing noteholders were entitled to receive exchange consideration comprising applicable new notes and cash considerations, as well as accrued interest.
Karot hydropower plant project in Pakistan
CATEGORIES: Energy infrastructure; Belt and Road
LEGAL COUNSEL: Tian Yuan Law Firm and Allen & Overy acted for China Three Gorges Corporation.
Shearman & Sterling, Global Law Office and Mourant Ozannes acted as counsel to The Export-Import Bank of China, China Development Bank, Silk Road Fund and International Finance Corporation. Kabraji & Talibuddin and Deacons also acted as Pakistani counsel and Hong Kong counsel to the lenders, respectively.
KEY POINTS: The Export-Import Bank of China, China Development Bank, Silk Road Fund and International Finance Corporation provided the facility for the construction of the 720MW Karot hydropower project in Pakistan on the Jhelum River, east of Islamabad, which is expected to be commercially operational in 2021. The facility was provided to Karot Power Company (Private) Limited, a Pakistan-incorporated subsidiary of China Three Gorges South Asia Investment.
Mourant Ozannes says the transaction involved a range of cross-border issues spanning Mainland China, Pakistan, Hong Kong and the Cayman Islands. Shearman & Sterling says the deal marks the largest hydropower plant in Pakistan to be financed on a limited-recourse basis.
This project represents one of the three multi-stage hydropower projects in Pakistan being developed by China Three Gorges South Asia Investment, a company incorporated in the Cayman Islands.
As the first large-scale hydropower investment and construction project under the Belt and Road initiative, Karot Hydropower Project is listed as a preferential implementing project of the China-Pakistan Economic Corridor, according to the Agreement for Energy Project Co-operation of China-Pakistan Economic Corridor.
According to Tian Yuan, Karot Hydropower Station will not only provide high-quality clean energy electricity to Pakistan, but also offer more than 2,000 direct jobs to the country and drive the co-ordinated development and industrial upgrade of the local electricity supporting sector.
NAURA Technology acquires Akrion Systems
CATEGORIES: Overseas M&A; Semiconductor
LEGAL COUNSEL: Zhong Lun Law Firm was domestic counsel and Gibson Dunn & Crutcher was foreign counsel to NAURA Technology Group, while Perkins Coie acted as counsel to Akrion Systems, the seller.
KEY POINTS: Akrion Systems is based in Allentown, Pennsylvania and provides surface preparation equipment and related services for the semiconductor and solar industries. NAURA Technology Group is based in Beijing and its stock is listed and traded on the Shanghai Stock Exchange. Xue Fang, partner in charge of Gibson Dunn’s Beijing office, says this transaction was highly challenging and took more than nine months to sign. The seller is a distressed limited liability company with a significant amount of bank and shareholder debt, so careful consideration had to be given to the structure of the transaction to minimize adverse tax, regulatory and insolvency issues.
Xue adds that the deal was ultimately structured as a complex asset deal in multiple jurisdictions. Formal submission was made to the Committee on Foreign Investment in the United States (CFIUS) in September 2017, and if cleared this will be the first Chinese acquisition of a US semiconductor company approved by CFIUS under the Trump administration (not counting acquisitions of US semiconductor companies that were originally owned by Chinese investors and subsequently sold to other Chinese investors).
PRC Ministry of Finance issues US dollar sovereign bonds
CATEGORIES: Sovereign bond
LEGAL COUNSEL: Linklaters acted for the issuer, the PRC Ministry of Finance (MoF). Allen & Overy advised the joint lead managers on English and Hong Kong law. Fangda Partners acted as PRC counsel to the joint lead managers.
KEY POINTS: The US$2 billion, dollar-denominated sovereign bond issuance by MoF was the first such issuance since 2004.
Linklaters says this issuance underlines China’s drive to establish itself as a global player in international markets as part of its “Going Out” and Belt and Road initiatives. Reflecting the international nature of the offering, the US dollar bonds are governed by English law, cleared through Euroclear and Clearstream, and issued in Hong Kong.
The transaction also provides a new yield curve for pricing future US dollar bonds issued by China companies, according to Linklaters. Prior to this issuance, there was no official sovereign credit benchmark for corporate US dollar issuances coming out of China.
Qudian’s IPO on New York Stock Exchange
CATEGORY: Overseas listing; Fintech
LEGAL COUNSEL: Simpson Thacher & Bartlett acted as US legal adviser, Fangda Partners was PRC counsel, and Conyers Dill & Pearman acted as Cayman Islands counsel to the issuer, Qudian. Kirkland & Ellis was US legal adviser and Tian Yuan Law Firm was PRC legal counsel to the underwriters.
KEY POINTS: Qudian is an online micro-lending company that provides short-term micro loans through its mobile app to China’s young workers who are looking for extra cash to be able to afford things like premium-priced apparel or concert tickets.
Backed by Alibaba’s affiliate Ant Financial, Qudian uses its data to analyse a borrower’s creditworthiness based on data sources gleaned from social media and one’s e-commerce history. Conyers says that as China still lacks a formal credit assessment mechanism, Qudian’s platform provides easier access to traditional credit for smaller or first-time borrowers.
Simpson Thacher says the transaction involved disclosure and in-depth discussion with the US Securities and Exchange Commission as to the intricate regulation of China’s fintech industry, novel business arrangements among Qudian, its funding partners and borrowers, the accounting impact of such business arrangements, and loan performances information.
Tian Yuan says this listing represented the biggest US listing by a Chinese financial technology firm to date. Conyers says it is also worth noting that Qudian was the most high-profile company to take part in a resurgence of US listings by Chinese firms in 2017.
Shanghai Electric Group invests in Manz
CATEGORIES: Overseas investment; Technology transaction
LEGAL COUNSEL: In Shanghai Electric Group’s purchase of Manz’s equity interest, Baker McKenzie advised Shanghai Electric Group Company, while Hogan Lovells advised the private bank Bankhaus Lampe, which acted as the global co-ordinator and financial adviser on the capital increase of Manz, in which subscription rights were granted to current shareholders.
KEY POINTS: Shanghai Electric Group, one of the largest mechanical and electrical equipment manufacturers in China, invested in Manz, a German-listed, high-tech equipment manufacturer with a strategic focus on electronics, the solar industry and energy storage.
Baker McKenzie says the deal showed growing momentum by Chinese companies to gain access to the German technology industry through acquisitions, especially public acquisitions. Such acquisitions usually involved multi-jurisdictional merger control filing obligations, approval from the target company’s shareholders, and supervision by the German Federal Financial Supervisory Authority.
Shanghai Electric, Manz and Shenhua establish JV
CATEGORY: Joint venture; Technology transaction
LEGAL COUNSEL: In the joint venture establishment between Shanghai Electric, Manz and Shenhua Group, Latham & Watkins advised the National Institute of Clean and Low Carbon Energy, a subsidiary of Shenhua Group. Menold Bezler was counsel to Manz.
KEY POINTS: In another transaction, Shanghai Electric and Manz, together with National Institute of Clean and Low Carbon Energy, a subsidiary of Shenhua Group, established the joint venture NICE PV Research, a research institution with the aim of speeding up the development of copper indium gallium selenium (CIGS) technology in order to leverage potential for a further increase in photovoltaic efficiency.
As part of this deal, Manz CIGS Technology, a previous subsidiary and research arm of Manz, was incorporated into the new joint venture. Latham & Watkins says the deal was complex and required a combination of share and asset purchase agreements.
Sisram spin-off, HK listing by Fosun Pharmaceutical
CATEGORIES: Overseas listing; Healthcare
LEGAL COUNSEL: Dentons and Israeli law firm Yigal Arnon & Co served as legal counsel of the co-sponsors and underwriters. The issuer’s lawyers included Grandall Law Firm, Freshfields Bruckhaus Deringer and Israeli law firm Weinstock Zecler & Co. Taylor Wessing, as German legal counsel, Perkins Coie, as US legal counsel, and Trilegal, as Indian legal counsel, were also involved in this deal.
KEY POINTS: Sisram Medical was a majority-owned subsidiary of Fosun Pharmaceutical, and its wholly owned subsidiary, Alma Lasers, mainly engages in the research, development, production and sale of devices for cosmetic surgery. Both Sisram Medical and Alma Lasers are registered in Israel, and accordingly this project was essentially the spin-off of a majority-owned subsidiary by an H-share/A-share dual listed company registered in Mainland China, and completion of the listing in Hong Kong.
Dentons says this was the first time that Israel had been confirmed by HKEx as the place of registration of an H-share listed company. Dentons was able to demonstrate the soundness of Israel’s company law and its comparability with Hong Kong company law through intense liaison with HKEx, and partnering with local Israeli law firms, Israeli legal opinions, etc., ultimately opening a path for an H-share listing by an enterprise registered in Israel.
The project involved several difficulties. For example, as the parent of Sisram Medical was an enterprise listed in two locations, the difficulty of information disclosure was relatively high. The issuer also has a large number of upstream and downstream enterprises, making co-ordination of due diligence relatively difficult. Dentons was required to conduct several rounds of due diligence in respect of numerous enterprises relating to Alma Lasers business procedures.
An enterprise listed in China that wishes to carry out a spin-off and listing is first required to secure a no action letter from the China Securities Regulatory Commission (CSRC). However, Dentons discovered that all subsidiaries spun off in previous similar projects were companies registered in China. In contrast, as the subsidiary spun off in this project was registered in Israel, it was unclear whether the CSRC would exercise oversight over such a spin-off, and what those oversight criteria would be. Therefore, the issuer, its lawyers and sponsors actively liaised with the CSRC, submitted the required materials, and smoothly secured a no action letter from the CSRC for the spin-off and listing on a one-off basis.
State Grid issues US$7.7 billion medium term note
CATEGORIES: Overseas debt capital market
LEGAL COUNSEL: King & Wood Mallesons was PRC counsel to State Grid Corporation, the issuer and guarantor in this issuance. Herbert Smith Freehills advised State Grid on English, US and Hong Kong law. Conyers Dill & Pearman acted as British Virgin Islands (BVI) counsel to State Grid.
Linklaters advised the initial purchasers on English and US law. Commerce & Finance Law Offices was PRC counsel to the initial purchasers.
KEY POINTS: State Grid Overseas Investment, a wholly owned subsidiary of State Grid Corporation, issued senior guaranteed notes consisting of four tranches through its BVI special purpose vehicle. Measured by revenue, State Grid is one of the largest utility and power grid corporations in the world, as well as the largest power grid construction and operation company in China.
According to Conyers Dill & Pearman, the first drawdown under the programme came in four tranches and raised US$5 billion in the first week of May 2017, the largest G3 bond (i.e., bonds issued in US dollars, yen or euros) in 2017, and the largest bond issue ever by a Chinese state-owned enterprise.
King & Wood Mallesons says State Grid achieved a breakthrough in overseas financing by offering this medium-term note programme, which provided the issuer with the flexibility on the timing of issuance and effectively resolved the difficulties of large issuance scale and dispersed points of time for using the funds. The firm had to complete multiple tasks in a limited timeframe, such as internal and external approvals, due diligence, review of issuance and transaction documents, and issuing legal opinions.
WuXi Biologics’ Hong Kong IPO
CATEGORIES: Overseas listing; Biotechnology
LEGAL COUNSEL: Wilson Sonsini Goodrich & Rosati was Hong Kong and US counsel to the issuer, Wuxi Biologics. Fangda Partners acted as PRC counsel to Wuxi Biologics. Maples and Calder advised the issuer on Cayman Islands and BVI laws.
Shearman & Sterling and Jingtian & Gongcheng were legal counsel to the joint underwriters, including Bank of America Merrill Lynch, Morgan Stanley and China Merchant Securities.
KEY POINTS: Wuxi Biologics is a unique platform as the leading open-access biologics technology platform in the world that offers multinational pharmaceutical and biotechnology companies end-to-end solutions empowering any company to discover, develop and manufacture biologics from conception of an idea to finally achieving commercial manufacturing.
Since WuXi Biologics is the only integrated biologics outsourcing company in China, there are no direct comparable companies for the deal, with no meaningful precedents for reference purposes, notes Shearman & Sterling. During the stock exchange vetting process, elaborated and extensive disclosures on Wuxi Biologics’ unique business model, fee structure and revenue recognition mechanism were made to ensure the public comprehended such complexity.
Shearman & Sterling says WuXi Biologics’ IPO sets a precedent on the Hong Kong Stock Exchange for global biologics service providers and hopefully will attract more similar companies to look to Hong Kong for fundraising.
Yunfeng Financial acquires MassMutual Asia
CATEGORIES: Overseas M&A; Insurance; Fintech
LEGAL COUNSEL: Simpson Thacher & Bartlett was legal counsel to Yunfeng Financial Group, while Skadden Arps Slate Meagher & Flom advised MassMutual International, and Kirkland & Ellis advised JP Morgan, the financial adviser to Yunfeng Financial Group.
KEY POINTS: Yunfeng Financial Group led an investor group to acquire MassMutual Asia, a Hong Kong-based insurance company, from MassMutual International. Yunfeng would acquire a 60% stake and several other investors would acquire the remaining 40% stake. The total deal value is HK$13.1 billion (US$1.68 billion).
Yunfeng Financial Group is a leading Asia-focused investment and financing platform. The transaction can add insurance and annuity products to Yunfeng’s existing fintech-focused financial services. MassMutual sees increased opportunities to grow in Asia as it gains a stake in Yunfeng as part of this deal.
The completion of the transaction requires various approvals, including those from the Hong Kong Insurance Authority, the Hong Kong Stock Exchange, the Hong Kong Securities and Futures Commissions, and the independent shareholders of Yunfeng Financial Group.
ZhongAn’s Hong Kong IPO
CATEGORIES: Overseas listing; Insurance; Fintech
LEGAL COUNSEL: Skadden Arps Slate Meagher & Flom and Grandall Law Firm advised the issuer, ZhongAn Online P&C Insurance. Cleary Gottlieb Steen & Hamilton and Han Kun Law Offices advised the underwriters.
KEY POINTS: The listing is the world’s first “insuretech” public offering and was the largest technology IPO in Hong Kong in 2017, says Skadden.
ZhongAn Online P&C Insurance, the leading online insurance company in China, made a US$1.525 billion initial public offering of H-shares on the main board of the Hong Kong Stock Exchange.
ZhongAn was founded by nine shareholders, including Ping An Insurance and Chinese internet giants Ant Financial and Tencent Holdings. According to Han Kun, it is the first internet company to obtain an insurance institution licence and one of the four online-only insurance companies to hold such an insurance licence.
DISPUTES AND INVESTIGATIONS
Danish company Novozymes’ patent administrative litigation case
CATEGORIES: Patent; Biotechnology; Administrative litigation
LEGAL COUNSEL: Hui Zhong Law Firm and Wu Feng & Zhang served as legal counsel for Novozymes.
KEY POINTS: Novozymes is a Danish biotechnology company. The Supreme People’s Court accepted an administrative patent dispute case pitting Novozymes against two other biotechnology companies and the Patent Re-examination Board of the State Intellectual Property Office. The final judgment of the Supreme People’s Court was in favour of the Danish company.
Hui Zhong says this case, touching upon the issue of the criteria for defining the scope of protection in Chinese patent practice, is of great significance. How to reasonably define the scope of patent protection of protein inventions in the biological field has long been a vexatious issue in professional circles.
In practice, a patent applicant usually uses the “homology + function” method to define the scope of patent protection (homology is the degree of similarity between two protein molecular amino acid sequences). However, due to the low predictability of the function of a protein from its amino acid sequence, this method of definition was usually deemed as providing an overly broad scope of protection and not being supported by the patent description, thereby making grant of the patent impossible, or resulting in the invalidity of the patent.
In this case, Hui Zhong argued that the judgments at first instance and appeal ignored the importance of definition by source and emphasized, in a one-sided manner, the uncertainty of definition by homology, thereby inappropriately holding that the addition of definition by source could not overcome the deficiencies of definition by homology.
In its judgment, the Supreme People’s Court ultimately found that: (1) a protein patent could be defined by the “homology + origin + function” method to permit a reasonable summarization; and (2) the determination of whether the claims are supported by the description must be done from the perspective of a person skilled in the art.
According to Hui Zhong, this judgment not only protects the inventor’s contribution to the prior art, but also takes into consideration the interests of the public. The case has guiding significance for the composition and examination of biological patent applications.
The Hui Zhong team was led by Fei Ning, managing partner in Beijing, and the Wu Feng & Zhang team by Amy Feng, founding partner in Beijing.
EU anti-dumping investigations against Chinese stainless steel tube and pipe butt-welding fittings
LEGAL COUNSEL: East & Concord Partners represented the Chinese side – including three mainland enterprises and one Taiwan enterprise – in responding to the legal action. East & Concord also co-operated with Steptoe & Johnson in representing the entire Chinese industry in mounting a no-injury defence in this anti-dumping investigation.
KEY POINTS: In October 2015, the EU opened a case to conduct an anti-dumping investigation of stainless steel tube and pipe butt-welding fittings originating from the Chinese mainland and Taiwan. In January 2017, the European Commission rendered a positive final ruling in the case. The Taiwan enterprise secured a 0% duty rate and one of the mainland enterprises secured exemption of its products in the case.
With respect to this anti-dumping investigation, East & Concord’s Beijing partner, Vivian Wang, and her team visited the relevant enterprises on several occasions in the course of responding to the action to guide them in answering the anti-dumping questionnaire, and completed the cumbersome work of processing the documents and data in the limited timeframe. At on-the-spot verification stage, Wang went to the enterprises early to assist them in preparing their documentation and conducting a mock verification, ensuring the smooth conduct of the official verification.
In terms of the no-injury defence, Wang co-operated with the China Chamber of Commerce of Metals, Minerals & Chemicals Importers & Exporters and its member enterprises in actively gathering enterprise data and industry information, mounting a vigorous defence against the accusation levelled by the initiators of the action. No preliminary duties were imposed in the case and levying of anti-dumping duties will only commence after the final ruling.
A Chinese exporter and its Taiwan affiliate argued that low roughness pipe fittings and clamp-type pipe fittings should be excluded from the products subject to investigation. The application to have those products excluded was accepted by the European Commission.
East & Concord says this case is an example of a successful exclusion of a product from an anti-dumping investigation levelled against China by the EU, and the successful defence arguments and strategy in the case have important implications for Chinese enterprises and industries in potential future anti-dumping investigations.
Guinness World Records sues Chery Automobile for trademark infringement
and unfair competition
CATEGORIES: Trademark; Unfair competition; Litigation
LEGAL COUNSEL: Chang Tsi & Partners served as legal counsel for Guinness World Records.
KEY POINTS: The defendants in this case were Chery Automobile and Anhui Chery Automobile Sales. “吉尼斯” (Chinese characters for “Guinness”), “吉尼斯世界纪录” (Chinese characters for “Guinness World Records”) and “GUINNESS WORLD RECORDS” are registered trademarks of the plaintiff, Guinness World Records. Without the permission of the plaintiff, the defendants began to hold numerous large commercial events from April 2014 and frequently used the plaintiff’s registered trademarks and trade name in the publicity and promotion for these events.
Chang Tsi says the acts in question of the defendants were manifested in numerous ways and the participating entities were complex. There were not only promotional content on websites and background signs at the events, but textual content also appeared in numerous places, such as on the stunt cars, surrounding fences, floors, the attire of the working personnel, etc. The defendants’ infringing events also occurred on multiple occasions and over a wide area, covering at least 16 cities in China.
In court, the parties mounted vigorous arguments revolving around key issues such as whether the acts in question were performed by the defendants, whether those acts constituted use as a trademark, whether the trademarks constituted generic names, whether the acts constituted trademark infringement and unfair competition, punitive damages, etc. Ultimately, the court accepted the plaintiff’s claim of trademark infringement and unfair competition.
Chang Tsi says that the findings on relevant legal issues in the judgment will have strong guiding significance for future judicial judgments.
The Chang Tsi team was led by Nancy Qu, senior patent lawyer, and Tracy Shen, partner, in Beijing.
HK High Court and Market Misconduct Tribunal proceedings regarding alleged market misconduct by CITIC Limited
CATEGORIES: Capital markets; Information disclosure
LEGAL COUNSEL: Hogan Lovells, Simmons & Simmons, King & Wood Mallesons, Davis Polk & Wardwell and Clifford Chance represented the former directors of CITIC Limited, respectively. Reed Smith Richards Butler acted for CITIC Limited.
KEY POINTS: The Hong Kong High Court and Market Misconduct Tribunal (MMT) proceedings were brought by the Securities and Futures Commission (SFC) alleging market misconduct in respect of a circular issued in 2008 that allegedly contained false or misleading information.
According to Hogan Lovells, this case had been one of the longest running hearings in the history of the MMT, which found that CITIC Limited and five of its former executive directors had not disclosed false or misleading information that was likely to maintain, increase, reduce or stabilize the price of CITIC shares, and so had not engaged in market misconduct.
Hogan Lovells says this was the first time the SFC had brought proceedings in the Court of First Instance of the High Court to compel creation of a restoration fund – of HK$1.9 billion – to compensate the affected investors, while pursuing allegations of false or misleading information before the MMT.
Howshow Technology successfully defends against US ITC patent infringement case
CATEGORIES: Patent; Section 337 investigation
LEGAL COUNSEL: Orrick Herrington & Sutcliffe acted for Shenzhen Howshow Technology.
KEY POINTS: Orrick successfully defended Howshow against Kent Displays (KDI) in this US International Trade Commission (ITC) section 337 investigation involving alleged infringement of patents relating to liquid crystal e-writers and components. KDI eventually withdrew its complaint unconditionally against Howshow. The Chinese company ended the investigation without making any payment or concessions to KDI.
At a very early stage of the investigation, KDI filed a motion to prevent the transfer of any of its confidential information to any lawyers in China, citing concerns about information security in China. According to Orrick, this request was unprecedented in the ITC, and would have severely restricted the ability of Orrick team members in China to adequately represent Howshow. Orrick defeated that motion. The fact that this motion was defeated was cited by KDI as one of the reasons that it abandoned its case.
Orrick believes this case is monumental because KDI was originally on a settlement negotiation with Howshow, but was later forced to withdraw its complaint unconditionally, which enables Howshow to sell its products in any market worldwide with no constraints. Orrick says the result of this case is extremely rare at the ITC, and it is also the first result of its kind for a Chinese respondent.
The Orrick team was led by Shanghai partner Ethan Ma and Washington DC partners Jordan Coyle, Sten Jensen and Vann Pearce Jr.
Microsoft sues two internet companies in Shanghai for software copyright infringement
CATEGORIES: Software copyright; Litigation
LEGAL COUNSEL: AllBright Law Offices served as legal counsel for the two defendant companies, namely Shanghai Zhongsheng Network Technology and Shanghai Chenyi Network Technology.
KEY POINTS: At the end of 2015, the plaintiff, Microsoft Corporation, engaged lawyers to investigate two internet data centres (IDCs) in Shanghai. The plaintiff’s lawyers first impersonated average customers in conducting business discussions with the two defendants, securing preliminary evidence through this tactic. Subsequently, the plaintiff instituted a legal action in the Shanghai Intellectual Property Court on the grounds that without authorization the defendants duplicated, installed, distributed and commercially used its computer software.
AllBright, led by Dong Wentao, its senior lawyer in Shanghai, served as counsel for the defendants. Dong mounted the firm’s defence around such key points as the specific features of the IDC industry, the relationship between IDC enterprises and end users, the legal validity of the evidence collection tactic used in this case, commercial use of computer software, etc., and submitted detailed written cross-examination opinions to the court. Following the hearings, the plaintiff applied to the court for withdrawal of its legal action, which was approved in March 2017.
AllBright says the case has guiding significance for both the software and IDC industries. For software enterprises, the focus of protection of their copyrights should always be placed on end users, not IDC enterprises. The services provided by IDC enterprises to end users have not yet reached the point that end users can be ignored, with the liability directly being borne solely by the IDC enterprises.
IDC enterprises such as internet data centres, big data centres and cloud service centres need to maintain a high degree of copyright sensitivity and resolutely refuse to cross the red line of installing pirated software for end users, failing which they will face major infringement risks.
Microsoft’s territorial extension application of the trademark “POWERPOINT”
CATEGORIES: Trademark; Litigation
LEGAL COUNSEL: Wanhuida Peksung acted for Microsoft in the refusal review and the subsequent administrative litigation.
KEY POINTS: In November 2011, Microsoft Corporation filed an application for the territorial extension of its international registration of the trademark “POWERPOINT” in class 42. The China Trademark Office refused the application, and the Trademark Review and Adjudication Board (TRAB) confirmed the refusal. The Beijing IP Court, in December 2015, issued a judgment maintaining the TRAB’s decision.
The Beijing IP Court held that “POWERPOINT” is a kind of file format developed by Microsoft Corporation. The use of the applied trademark by Microsoft Corporation makes the relevant consumers generally recognize “POWERPOINT” as the name of such file format rather than as a sign distinguishing the origin of goods or services. Thus the applied trademark lacks distinctiveness and is unregistrable.
Microsoft then appealed to the Beijing High People’s Court, which revoked the previous judgment and ruled in favour of Microsoft. The high court found that “POWERPOINT”, as a trademark on presentation files software, is well known by the relevant public, but this does not sever the relationship between the product and trademark owner Microsoft Corporation. Instead, this reputation has strengthened the connection. The word functions as a source identifier of services, and is registrable as a trademark.
Parallel arbitration cases involving International Wood Suppliers
LEGAL COUNSEL: Guantao Law Firm
KEY POINTS: This dispute arose between International Wood Suppliers (Hong Kong) Limited (IWS), a German-funded company registered in Hong Kong, and another company registered in the Republic of Lithuania.
Guantao applied for arbitration at the China International Economic and Trade Arbitration Centre (CIETAC) on behalf of IWS in December 2015. However, during CIETAC arbitration proceedings, the Lithuania-registered company also submitted a parallel arbitration for the same case to the Lithuanian Court of Arbitration (LCA), in August 2016.
After careful study of the relevant Lithuanian law and arbitration rules of the LCA, as well as seeking advice from Lithuanian lawyers, Guantao’s legal team raised objections to the jurisdiction of the LCA tribunal and the validity of some parts of the arbitration clause, and successfully persuaded the LCA tribunal to render an award to leave the claim of the Lithuanian company unexamined.
The issues at dispute included whether a third-party offender hacked into the email account of the respondent resulting in defaults, which party must bear the liability for breach of contract, and how. The CIETAC tribunal finally ruled in January 2017 in favour of IWS.
The Guantao team was led by Xu Ling, the executive partner in Beijing, and Sun Shaosong, the firm’s partner in Beijing.
Qualcomm sues Meizu in litigation regarding antitrust issues
CATEGORIES: Standard essential patent (SEP); Litigation
LEGAL COUNSEL: Tian Yuan Law Firm served as legal counsel for Meizu Technology and its Beijing branch.
KEY POINTS: In June 2016, Qualcomm instituted an antitrust action in the Beijing Intellectual Property Court after it failed to reach a consensus with Meizu through negotiations on the conditions for licensing a standard essential Chinese patent.
According to Tian Yuan, Qualcomm’s intent was to secure, through a civil antitrust procedure, confirmation by the court that the conditions proposed by Qualcomm for the licensing of a standard essential Chinese patent to Meizu and other Chinese mobile enterprises did not violate the PRC Anti-Monopoly Law and complied with fair, reasonable and non-discriminatory (FRAND) terms. This would have a direct impact on whether other mobile enterprises that have yet to sign an SEP licensing agreement with Qualcomm have independent negotiating room. Such a claim is a new type that has appeared for the first time.
Great importance was attached to the claims and grounds set out by Tian Yuan in opposition to jurisdiction in the case. The case stalemated at the opposition to jurisdiction stage, thereby according Meizu precious time to conduct a technical analysis of Qualcomm’s licensed patent, laying the foundation for subsequent discussions and settlement between Meizu and Qualcomm.
Tian Yuan says that Meizu’s approach in responding to the legal action in this case will have important implications in antitrust actions that occur in future in the SEP field. The team of the PRC law firm was led by Huang Wei, the firm’s partner in Beijing.
Rhodia and Solvay (China) defend trade secret misappropriation action
CATEGORIES: Trade secret; Litigation
LEGAL COUNSEL: Hogan Lovells represented Rhodia and its affiliate, Solvay (China).
KEY POINTS: This case was part of global patent litigation between Rhodia, the world’s leading manufacturer of synthetic vanillin, and Jiaxing Zhonghua Chemical, the largest Chinese manufacturer of the same.
The trade secret misappropriation action was brought by Zhonghua Chemical before the Shanghai Intellectual Property Court, and the asserted technical trade secrets involved the highly complex manufacturing process of synthetic vanillin, an aromatic chemical widely used in foods, perfumes, etc. Zhonghua Chemical sought damages of at least RMB18 million. Ultimately the case was settled on terms in favour of Rhodia.
Rhodia also brought cases against Zhonghua Chemical in other jurisdictions, such as in Europe, seeking a pan-European injunction. Hogan Lovells’ involvement in this case showcases the importance of having a single global team of lawyers.
Taobao files lawsuit against counterfeit seller
CATEGORY: E-commerce; Litigation
LEGAL COUNSEL: Duan & Duan represented Taobao.
KEY POINTS: According to Duan & Duan, this case was the first legal action instituted by an e-commerce platform against a counterfeit seller in China, and perhaps also the first of its kind in the world. Traditionally, the sale of counterfeit goods has been deemed an infringement of the rights of the intellectual property rights holder, or the rights of consumers, and there is no precedent of a legal action instituted from the perspective of an e-commerce platform to combat counterfeit goods.
In this case, the e-commerce platform’s anti-counterfeiting strategy was to institute a legal action on the basis of the service contract and damage to goodwill, which was ultimately upheld by the court. Duan & Duan says that although the measure of damages ultimately supported by the court was not large, the case, as a groundbreaking judgment, has tremendous significance. A special report on the case has already been published in the Supreme People’s Court’s China Trial magazine. It is anticipated that the case may be selected by the Supreme People’s Court as a precedent.
Duan & Duan’s team was led by Liu Chunquan, a partner in its intellectual property practice group.
US anti-dumping and anti-subsidy investigations against iron mechanical transfer drive components from China
CATEGORY: Anti-dumping; Anti-subsidy; International trade
LEGAL COUNSEL: AllBright Law Offices’ international trade team represented the entire industry in responding to an injury investigation by the US International Trade Commission (ITC), and represented Sichuan Dawn Precision Technology in responding to a dumping investigation by the US Department of Commerce.
KEY POINTS: In October 2015, the American company TB Wood’s applied to the US Department of Commerce and the ITC for the launch of anti-dumping and anti-subsidy investigations against certain iron mechanical transfer drive components imported from China. AllBright repeatedly provided opinions on the scope of products that, in respect of dumping and injury, have a material impact, conducted intensive debate with the American complainant and secured the partial support of the US Department of Commerce in the preliminary ruling, successfully obtaining a dumping margin for Dawn approaching a minimal amount.
In December 2016, the ITC issued its final rulings in the two investigations, finding that the iron mechanical transfer drive component products imported from China did not substantively harm or threaten the US domestic industry, and ruling to terminate the investigations and not take any measures against Chinese products.
According to AllBright, at the end of November 2016, the US had taken anti-dumping measures against a total of 102 products from China, and anti-subsidy measures against 38 products. This case is one of the instances in which China won a no-injury verdict in an iron and steel product dual investigation case in the US. Against the severe political background of a presidential election year, this case was a complete victory, securing the best possible result in a US investigation of iron and steel products from China, not only protecting the interests of the industry but also strengthening the confidence of Chinese enterprises in responding to trade remedies.
The AllBright team was led by Li Ye, its senior partner in Beijing.
US ITC’s section 337 investigations against Chinese steel companies
CATEGORY: Section 337 investigation; Trade secret; Antitrust; International trade
LEGAL COUNSEL: Jincheng Tongda & Neal and Covington & Burling served as legal counsel for the China Iron and Steel Association. The two law firms were also the co-ordinators of all legal counsel on the Chinese side in the case.
Jincheng Tongda & Neal and Covington & Burling, together with other Chinese and foreign law firms – including Gaopeng & Partners, Hiways Law Firm, DeHeng Law Offices, Chang An Law Firm, Steptoe & Johnson, Alston & Bird, Foster Murphy Altman & Nickel, Greenberg Traurig, and Adduci Mastriani & Schaumberg – represented the Chinese iron and steel enterprises in this case.
Covington & Burling assisted Baosteel in handling the three points (see details below) involved in this investigation.
KEY POINTS: In April 2016, the US Steel Corporation filed with the US International Trade Commission (ITC) for a section 337 investigation against 41 Chinese iron and steel enterprises (including Baosteel, Shougang, Ansteel, etc.) and trading companies, accusing Chinese producers and sellers of carbon and alloy steel products of “unfair trading” (including price-fixing, “misappropriation” of trade secrets, and false designation of origin), and requesting that the ITC render a ruling banning the export of almost all iron and steel products from China to the US and banning the sale of such products already present in the US.
According to Jincheng Tongda & Neal, this was the largest ever section 337 investigation involving the US and China to date, involving a subject amount of US$1 billion. The firm says the case will have a material impact on the trade between the two economies.
Covington also says this case has significant legal, economic and political implications. From the legal perspective, how ITC would handle the allegation of price-fixing would reveal whether it would follow the antitrust rules laid down by the US Supreme Court and federal courts or create its own rules. From the economic and political perspective, the general outcome of this case has potential influence on the export of one of Chinese key industries to US and the reputation of the Chinese government.
This was also the first section 337 investigation ever encountered by Chinese companies in the history of the Chinese iron and steel trade. Jincheng Tongda & Neal says the Chinese iron and steel enterprises incurred large costs in responding to the action. However, the significance of their response to the action lay in, first, safeguarding the honour and image of Chinese enterprises, and second, telling international competitors not to attack Chinese enterprises in the absence of any evidence. From this perspective, the firm says future costs saved by the response to this action are inestimable.
This case involved three points: anti-monopoly; misappropriation of trade secrets; and false designation of origin. To date, the Chinese enterprises have obtained complete victory with regard to two of these points – trade secret misappropriation and false origin, and the relevant investigation procedures with regard to these two points have terminated.
In terms of anti-monopoly, the initial judgement has also been in favour of the Chinese enterprises. The initial judgement is still subject to review at the moment.
Covington & Burling LLP team was led by Beijing-based partner Ruixue Ran and Washington-based partner Sturgis Sobin.
ZTE successfully defends itself against injunction sought by Sisvel
CATEGORY: Patent; Litigation
LEGAL COUNSEL: Taylor Wessing and Vossius & Partner represented ZTE.
KEY POINTS: Sisvel is a renowned patent licensing agent for consumer electronic products. In July 2017, the Düsseldorf Regional Court made a landmark decision on fair, reasonable and non-discriminatory (FRAND) licensing, in which the court rejected Sisvel’s motion for injunctive relief as “currently unfounded”. The dispute between Sisvel and ZTE concerned the “wireless portfolio” offered by Sisvel for licensing.
The Düsseldorf court said that the licensing offers rendered by Sisvel had not been FRAND, and were presented too late. The court denied that the patent proprietor had an “unlimited option” for a subsequent improvement of the FRAND offer after having filed the patent action. Such an option was not in line with FRAND principles and the basic ruling in the case Huawei Technologies v ZTE Corp & ZTE Deutschland. The court also argued that the patent user must be granted enough time to react to a FRAND offer made by the patentee in order to negotiate on a level playing field.
The Taylor Wessing team was led by its Munich partner, Thomas Pattloch.