China Business Law Journal’s editorial team reports on outstanding deals and cases in 2016 that saw the most sophisticated efforts by legal counsel
Protectionism seems to be rising on both sides of the North Atlantic, with the jaw-dropping outcomes of the Brexit referendum and US presidential election being the most powerful tremors to shake the global economic landscape in 2016.
The full-fledged influence of so-called anti-globalization has yet to unfold, but some impacts can already be felt. Chinese exporters are being haunted by more trade conflicts, and are expected to suffer more in the near future. Some have handled such disputes quite successfully, such as the Chinese bulldozer manufacturer facing anti-dumping investigations from the Eurasian Economic Union, Jinan Meide Casting answering a charge relating to the dumping of malleable cast-iron pipe fittings before the European Court of First Instance, and Chinese vitamin C manufacturers witnessing the overturning of a judgment finding them liable for violating US price-fixing rules. These cases may give other Chinese companies more knowledge and confidence when venturing onto international trade battlegrounds.
Regardless of external uncertainties, China’s economy still maintained most of its momentum in the past year, and China Business Law Journal still received a huge number of impressive nominations for this year’s awards.
Environmental protection has been a priority in China. Increasingly bad pollution-fuelled smog, especially when public heating systems in the north burn fossil fuels in the winter, has added to the urgency. Transactions relating to clean energies and technologies, whether inbound or outbound, have been active. Capital markets have also started to play a more important role in the development of environment-friendly business. Bank of Qingdao became the first domestic city commercial bank to issue green bonds, Zhejiang Geely Holding Group issued the first overseas green bonds by Chinese automakers, and China Jinjiang Environment made its initial public offering (IPO) in Singapore.
Internet-related business also continues its rapid development. Alibaba Group made two important acquisitions in the media and entertainment sectors by purchasing the South China Morning Post, Hong Kong’s leading English-language newspaper, and taking over Youku Tudou, a major provider of online video platforms in China. The cash-burning war between Didi Chuxing and Uber in China’s online taxi-hailing market basically ended with the Chinese company acquiring and merging with Uber China. JD.com, one of the most popular e-commerce platforms in China, struck a strategic partnership deal with Walmart, while Tencent acquired a majority stake in Supercell, a Finland-based mobile game developer. The online business world remains as fiercely contested as ever.
The pace of China’s overseas investment continues to be quick and strong. ChemChina’s acquisition of Syngenta marked the largest outbound purchase by a Chinese company to date. The target industries that interest Chinese investors have been diverse, with the sports business one of the new highlights. Chinese investors have purchased football clubs in some of Europe’s premium football leagues.
The public-private partnership (PPP) has become an extremely popular model in China’s infrastructure development, supported and promoted by the central government and local authorities. And it’s not just for individual facilities, but also for integrated projects such as municipal construction and the development of industrial areas. The PPP model is contributing enormously to urbanization and economic development in China.
Our winning deals have, as in previous years, been chosen based on a number of factors, not just large monetary values. The overall significance, complexity and innovative nature of the deals were also considered, as well as 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: overseas deals; deals in China; and disputes and investigations. In each section, the deals/cases are listed in alphabetical order to avoid presumptions of ranking.
Alibaba acquires South China Morning Post (SCMP)
CATEGORIES: Overseas M&A; TMT
KEY POINTS: This deal represented the first major acquisition of a traditional media business based in Hong Kong by a large online and mobile commerce company, and meant a merger of the digital and newspaper platforms of the media businesses, says Slaughter and May.
Alibaba, the world’s largest online and mobile commerce company, expects to transform the 112-year-old traditional print newspaper into a global media entity covering news in China for readers around the world.
According to Slaughter and May, it was also one of the few acquisitions to date involving a substantial part of the business and assets from a listed company in Hong Kong whose shares had been suspended from trading for a long period and did not resume trading as an immediate result of the acquisition.
Since the acquisition, SCMP Group’s listing status has remained the same and it intends to diversify its business to property investment and develop a new corporate identity and image for the group.
Apex Technology acquires Lexmark International
CATEGORIES: Overseas M&A; TMT
LEGAL COUNSEL: King & Wood Mallesons, Maples and Calder, Skadden Arps Slate Meagher & Flom were legal counsel to Apex Technology, the lead member of the buying consortium. Wachtell Lipton Rosen & Katz advised Lexmark. Cleary Gottlieb Steen & Hamilton also participated in this deal as legal counsel.
KEY POINTS: This was one of the biggest overseas M&A transactions by a non-financial Chinese-listed company, according to King & Wood Mallesons. It involved a Chinese-listed company’s acquisition of a US-listed company, and therefore was required to comply with both PRC and US legal and regulatory requirements.
Facing multiple challenges, the transaction was concluded in a highly competitive environment with a demanding timetable, particularly in the lead-up to completion, including preparation of terms of closure to obtain approval from the Committee on Foreign Investment in the United States (CFIUS) and implementation of loan financing, says King & Wood Mallesons.
Apex is a global supplier of aftermarket printer consumables, aftermarket consumable chip and core components. Lexmark is a global company focused on printing and imaging solutions, enterprise software, hardware and other services, with a network across more than 170 countries.
Beijing Enterprises acquires EEW
CATEGORIES: New energy; overseas M&A
LEGAL COUNSEL: Mayer Brown JSM acted as legal counsel to Beijing Enterprises Holdings Limited. Clifford Chance advised the private equity firm, EQT, which was the seller.
KEY POINTS: This acquisition remains to date the largest Chinese direct investment in a German company, according to Mayer Brown. Beijing Enterprises, the commercial listed arm of the Beijing municipal government, made a successful bid to enter into the German waste management market.
“The bidding process was under a tight schedule,” Mayer Brown says. Extensive legal due diligence was required involving a review of thousands of documents within a month.
The acquisition of EEW was meant to support Beijing Enterprises’ development of an environmentally friendly industry and expand its overseas markets with active implementation of the “green development” concept. It is also in accord with the “One Belt, One Road” (OBOR) development strategy advocated by China, says Beijing Enterprises.
EEW, the leading energy-from-waste company in Germany, was acquired for €1.45 billion (US$1.52 billion).
Beijing E-Town Dragon acquires Mattson Technology
CATEGORIES: Overseas M&A; technology
LEGAL COUNSEL: Pillsbury Winthrop Shaw Pittman acted as legal counsel for Beijing E-Town Dragon Semiconductor Industry Investment Centre. Mattson Technology was advised by Latham & Watkins.
KEY POINTS: According to Pillsbury, this deal was one of the first in which a US publicly-traded tech company was acquired by a state-owned investor from China. “It is part of the overall China strategy to develop a complete semiconductor industry ecosystem within the country including materials, equipment, manufacturing and design technologies,” says Gartner, an information technology advisory company. “The acquisition underscores the need for suppliers to have strong relationships and be physically closer to new equipment companies in China to capture the growing business in that country. Manufacturers need a presence in and around these emerging ecosystems in China.”
The deal required sophisticated structuring to satisfy PRC regulatory and foreign exchange requirements, and also clearance by the CFIUS.
CECEP, Goldwind develop White Rock Wind Farm
CATEGORIES: New energy; overseas investment
LEGAL COUNSEL: Tian Yuan Law Firm provided comprehensive legal services for this project. Clayton Utz, an Australian law firm, acted as Australian legal counsel.
KEY POINTS: According to Tian Yuan, the acquisition of White Rock Wind Farm was a representative deal where a Chinese enterprise participated in the greenfield investment and development through equity acquisition. John Titchen, the managing director of Goldwind Science & Technology in Australia, said that the investment in the White Rock Wind Farm was a decision based on renewable energy targets included in the legislation of the Australian government. According to Li Shusheng, the chairman of CECEP Wind Power Corporation, the 175MW White Rock project will be larger than any other wind farm currently operated in the Australian state of New South Wales.
Under the legal environment and regulatory systems of an advanced economy, the Chinese law firm gathered various types of information concerning White Rock and relevant companies through sound due diligence. In co-operation with Tian Yuan, Clayton Utz conducted due diligence and gave Australian legal advice for the project.
The wind farm has a total installed capacity of 175MW and the White Rock project company was 100% held by Goldwind indirectly. CECEP Wind Power acquired a stake in the project company through a stake transfer and capital increase by its wholly owned Australian subsidiary. After completion of the project, CECEP Wind Power will acquire the remaining stake in the project company to achieve 100% control.
CGN diversifies with Edra acquisition
CATEGORIES: Energy; overseas M&A
LEGAL COUNSEL: Herbert Smith Freehills acted as lead counsel for China General Nuclear Power Corporation (CGN). Skrine and Rahmat Lim & Partners acted as CGN’s and 1Malaysia Development Berhad’s (1MDB) Malaysian counsel, respectively. Deol & Gill was Edra’s Malaysian counsel and Norton Rose Fulbright served as international counsel for Edra and 1MDB.
KEY POINTS: According to Norton Rose, this was one of the largest M&A transactions in Malaysia, marking the first major milestone in 1MDB’s plan to rationalize its assets. It was also one of the largest investments by a foreign power company in Malaysia, and the largest outbound power transaction by a Chinese company to date, according to Herbert Smith Freehills.
The acquisition required Malaysian government cabinet approval to lift foreign ownership restrictions, and was completed within a demanding timeframe.
Edra Global Energy is the second-largest independent power producer in Malaysia, and the largest in Egypt. It owns 3,112 MW of power assets in Malaysia and 2,482 MW collectively in Egypt, Bangladesh, Pakistan and the United Arab Emirates. The acquired assets are a mix of gas-fired and coal-fired thermal power plants. The value of the deal, which incorporated some 5,594 MW of power assets, was US$2.3 billion. CGN Group will also assume all relevant gross debt.
CGN invests in UK’s Hinkley Point C
CATEGORIES: New energy; overseas investment; project financing
LEGAL COUNSEL: King & Wood Mallesons teams acted as PRC, Hong Kong and European legal counsel for China General Nuclear Power Corporation (CGN). Ashurst also advised CGN. Clifford Chance and Herbert Smith Freehills were legal counsel for the French energy company building the plant, EDF Group. Eversheds advised CGN on its investment in the project. AnJie Law Firm advised China Development Bank as the arranger and lender.
KEY POINTS: The Hinkley Point C project was the first Generation III nuclear new-build project in the UK, and one of the largest energy and infrastructure projects to be carried out in the UK this decade, said Eversheds. Ashurst said Hinkley Point C marked the beginning of a new era in the UK nuclear sector.
The challenging work involved the development of innovative financing structures. The contract-for-differences adopted for the financing will last for 35 years, said Alex Doughty, a partner at Eversheds in London and one of the team leaders in the project.
According to Eversheds, approvals had to be sought from multiple pan-European and national authorities, including the UK licensing of the nuclear reactor technology owned by the French state-controlled Areva, the EU state aid review, merger control, and technology export consents.
The project was signed in the presence of former British prime minister David Cameron and President Xi Jinping. CGN is a major Chinese state-owned enterprise and also the largest and most experienced nuclear power reactor operator in China.
China is building more new reactors than anyone else and is bringing its unique capability, technology and expertise to the UK, says Ian Wood, a London partner at King & Wood Mallesons.
ChemChina acquires Syngenta
CATEGORIES: Overseas M&A; technology
LEGAL COUNSEL: Bär & Karrer, Davis Polk & Wardwell and Gleiss Lutz advised Syngenta. Cleary Gottlieb Steen & Hamilton and Cravath Swaine & Moore were legal counsel to the financial advisers to Syngenta. Darrois Villey Maillot Brochier, Fangda Partners, Homburger, Osler Hoskin & Harcourt, and Simpson Thacher & Bartlett advised China National Chemical Corporation (ChemChina). Clifford Chance and White & Case acted for the financial advisers to ChemChina.
KEY POINTS: This transaction is a rare example of a joint Swiss-US tender offer, and the largest outbound transaction by a Chinese company to date. According to Simpson Thacher, complexity was added to the deal with the need to reconcile US and Swiss tender offer rules because some shares in Syngenta, a Swiss agrochemical and seeds company, are American depositary shares (ADS) traded on the New York Stock Exchange (NYSE).
ChemChina acquired Syngenta by way of concurrent public tender offers in Switzerland and the US for all of Syngenta’s common shares listed on the SIX Swiss Exchange and ADS listed on the NYSE. The offer valued Syngenta’s total outstanding share capital at about US$43 billion.
CNNC restructures AREVA
CATEGORIES: New energy; overseas investment
LEGAL COUNSEL: Eversheds advised China National Nuclear Corporation (CNNC) on its US$3 billion equity investment in, and restructuring of, AREVA.
KEY POINTS: According to Eversheds, this transaction is three transactions in one: (1) an investment in AREVA, the world’s largest nuclear power company; (2) an investment in AREVA NP, a wholly owned subsidiary of AREVA, following its acquisition by Electricity of France (EDF); and (3) a five-pronged commercial participation between CNNC and AREVA across the full spectrum of the nuclear power supply chain, involving commercial agreements and joint venture arrangements. This transaction is likely to
require a multi-faceted and global review of the necessary filings and consents to implement those interlocking elements at an EU and a domestic level, says Eversheds, and it needs to comply with French securities laws and listing rules from the perspective of both AREVA and EDF. Appropriate permissions are required for the outbound investment of such a significant sum by CNNC.
CNNC is a large state-owned enterprise directly under the management of the central government.
The transaction will need to take into account the rights of existing shareholders in AREVA and achieve consensus on new minority/preferential rights for CNNC in the context of those existing arrangements.
Consortium buys Premier League club WBA
CATEGORIES: Overseas M&A; sports
LEGAL COUNSEL: King & Wood Mallesons advised the Chinese consortium on buying West Bromwich Albion Football Club.
KEY POINTS: King & Wood Mallesons says this deal highlights a significant interest from Chinese enterprises in European sports targets. This interest is expected to accelerate in the coming years. The deal represents the first acquisition of a Premier League football club by a Chinese investor, and the first deal that a Chinese private equity firm has made in the Premier League.
The deal was expedited by King & Wood Mallesons’ ability to cover UK and PRC law. Through the joint efforts made by domestic and overseas offices, several challenging legal questions were resolved.
Shenzhen-listed Palm Eco-Town Development, a company with market capitalization of US$1.8 billion, together with Yunyi Investment, a private equity firm, formed the Chinese consortium that injected a considerable amount of funds into, and successfully acquired, West Bromwich Albion Football Club.
COSCO takes majority stake in Greek port
CATEGORIES: Overseas M&A; shipping
LEGAL COUNSEL: Paul Hastings advised COSCO (Hong Kong) Group. Alexiou & Kosmopoulos Law Firm and Freshfields Bruckhaus Deringer advised the Greek government and Hellenic Republic Asset Development Fund, respectively.
KEY POINTS: According to Paul Hastings, this transaction was one of the most high-profile Greek privatizations in recent years and the successful execution of the deal was a key part of the plan to turn Piraeus Port into a logistics hub for Chinese exports to Europe under China’s OBOR strategic initiative. The development and prosperity of the port not only promotes the economic development of China and Greece, but also opens a new era of East-West trade co-operation.
COSCO HK, a wholly owned subsidiary of China Ocean Shipping (Group) Company, acquired 51% of the shares in the Piraeus
Port Authority (PPA) in the first phase of its acquisition of 67% of the shares in total.
COSCO HK will acquire a further 16% of shares in the second phase of this buy-up.
Paul Hastings also advised on the landmark restructuring involving both COSCO and China Shipping Group. The restructuring required a substantial reconfiguration of two of China’s leading state-owned enterprises, which combined have become the world’s fourth-largest container shipping company.
CPIC invests in Metromile
CATEGORIES: Insurance; overseas M&A; technology
LEGAL COUNSEL: Dorsey & Whitney advised China Pacific Insurance (CPIC) and Metromile on the deal structuring, transactional documents and closing.
KEY POINTS: Dorsey & Whitney says that while Chinese insurance companies have been known for acquiring real estate
assets overseas, this transaction represented a strategic investment into a technology-based American start-up in the same insurance industry, unprecedented for Chinese insurance companies.
The funding structure of Metromile, its growth potential, and the insurance regulatory regimes in both China and the US, made for complicated deal structuring.
CPIC is a leading integrated insurance group in China and Metromile is the pioneer of pay-per-mile car insurance in the US.
CRRC issues H-share convertible bonds
CATEGORIES: Convertible bonds; high-end manufacturing
LEGAL COUNSEL: Baker McKenzie advised CRRC Corporation on Hong Kong and English law, and Jia Yuan Law Offices acted as PRC counsel to CRRC. Fangda Partners acted as PRC counsel to the investment banks. Linklaters was English counsel to the investment banks and trustee.
KEY POINTS: This was one of the few pioneer cases for A+H listed companies to issue H share convertible bonds after the National Development and Reform Commission (NDRC) debt recordal reforms in 2015, says Baker McKenzie. The transaction was governed by English law and its dispute resolution was under the jurisdiction of Hong Kong courts.
CRRC Corporation is a Chinese publicly traded rolling stock manufacturer and the largest rolling stock manufacturer in the world. The parent company of CRRC Corporation is CRRC Group, a state-owned enterprise supervised by the State-owned Assets Supervision and Administration Commission (SASAC) of the State Council.
Development of Thar Block II coal mine in Pakistan
CATEGORIES: Energy & natural resources; overseas investment
LEGAL COUNSEL: Linklaters acted as Dubai International Financial Centre counsel to lenders. Vellani & Vellani and Zhong Lun Law Firm served as Pakistan and PRC counsel to the lenders, respectively. Moshin Tayebaly & Co was Pakistan counsel to the lenders and sponsors. RIAA Barker Gillette and Lincoln’s Law Chamber acted as Pakistan counsel to the sponsors. Pinsent Masons advised China Machinery Engineering Corporation and other sponsors. Haidermota BNR & Co was Pakistani counsel and Anjarwalla
Collins & Haidermota was English counsel to the borrower.
KEY POINTS: According to Pinsent Masons, Thar II was one of the first projects to be financed under China’s OBOR initiative and also one of the first under the US$46 billion investment plan known as China-Pakistan Economic Corridor.
Linklaters says the project was the first project to utilize coal in Thar II for power generation, and its development will reduce Pakistan’s dependence on costly oil-based power generation. The firm expects Thar II will become the energy capital of Pakistan in the next few years.
The deal is also a rare example of a project financing that has managed to successfully incorporate such a diverse syndicate of lenders into a workable financing structure, says Linklaters. The financing comprises both Chinese and Pakistani banks’ lending across US dollar, Pakistani rupee and Islamic sharia-compliant tranches.
The project involved a hybrid of Chinese and Islamic financing, and also involved two parts – US$821 million in financing for the power station and US$700 million for the mine, respectively. Lenders include CDB, ICBC, CCB and a group of Pakistani banks.
Financing for China-Russia LNG project
CATEGORIES: Energy; project financing
KEY POINTS: This project was implemented within the strategic framework for energy co-operation and signed by the leaders of China and Russia, according to Grandall Law Firm. It also represented a new way for China to co-operate with Russia or other countries in polar energy development projects in the future.
Chinese legal questions raised by all parties had to be resolved in a short time. Participating lawyers had to be familiar not only with the overseas investment projects of Chinese enterprises and the various legal provisions about external guarantees, but also with grading risk by practically analyzing the situation.
The three shareholders of Yamal liquefied natural gas (LNG) project are Novatek from Russia, PetroChina from China and Total from France. This was a key strategic energy project jointly developed by China and Russia, located in the Arctic Circle within the territory of Russia. It was also the largest LNG project in the world, and at the highest latitude.
Fosun International buys Wolverhampton Wanderers
CATEGORIES: Overseas M&A; sports
LEGAL COUNSEL: Bird & Bird advised Shanghai-based global investment group, Fosun. Squire Patton Boggs advised Bridgemere Group UK and businessman Steve Morgan, the shareholders of Wolverhampton Wanderers Football Club.
KEY POINTS: According to Squire, this was only the second purchase by a Chinese buyer of a UK football club, and the first acquisition by a Chinese company (as opposed to an individual). The firm says a number of complex issues were addressed in the share purchase agreement, including deferred consideration dependent on the promotion of the football club to the Premier League. The transaction was closed in a short timeframe and the Football League’s approval was obtained within two weeks.
Fosun Group, a publicly-listed Chinese investment company, bought Wolverhampton Wanderers Football Club from Steve Morgan and his Bridgemere Group. The deal sees 100% of the club’s shares and assets transferred from Morgan to Fosun.
Fosun Pharma takes majority stake in Gland Pharma
CATEGORIES: Overseas M&A; pharmaceuticals & life sciences
LEGAL COUNSEL: Troutman Sanders and Khaitan & Co were international and Indian counsel to Shanghai Fosun Pharmaceutical (Group), respectively. Simpson Thacher & Bartlett was international counsel to Kohlberg Kravis Roberts & Co (KKR), and Cyril Amarchand Mangaldas acted as Indian counsel to KKR and Gland Pharma.
KEY POINTS: Fosun Pharma acquired about an 86% stake in Gland Pharma. Troutman Sanders says this was the largest acquisition of an Indian company by a Chinese buyer to date, and was subject to regulatory approvals in China, India and the US. According to Simpson Thacher, the acquisition will strengthen Fosun Pharma’s global presence and enable the Chinese company to provide high-quality products and services to its customers worldwide, including the US, where Gland Pharma already has a significant presence.
Gland Pharma was the first company in India to get the US Food and Drug Administration’s approval for pharmaceutical liquid injectable products. Its manufacturing facilities have also received approvals from key medical regulatory agencies around the globe, including in Australia, Germany and the UK, as well as the World Health Organization. Fosun Pharma is a leading researcher, developer, producer and retailer of biopharmaceutical products worldwide.
Jinjiang Environment’s IPO in Singapore
CATEGORIES: New energy; overseas listing
LEGAL COUNSEL: Rajah & Tann acted as Singapore legal counsel. Jingtian & Gongcheng was PRC counsel and Walkers advised on Cayman Islands and British Virgin Islands law for Jinjiang Environment Holding Company. Morgan Lewis Stamford was Singapore legal counsel and Grandall Law Firm was PRC counsel to the sole issue manager, global co-ordinator, bookrunner and underwriter.
KEY POINTS: Jinjiang Environment’s IPO was the largest non-REIT/business trust IPO on the main board of the SGX-ST in the past two years, says Rajah & Tann. Jinjiang Environment raised about S$185 million (US$128 million) and its market capitalization at the time of listing on the SGX-ST was about S$1.08 billion.
The offering was made outside the US in reliance on regulation S under the Securities Act and other applicable laws concurrent with the public offer.
Headquartered in Hangzhou, Jinjiang Environment was the first private waste-to-energy (WTE) operator and also the leading WTE operator in China, with the largest waste treatment capacity in operation. Jinjiang Environment has 16 operating WTE facilities and 18 pipeline projects. Its business functions both as a sustainable waste management solution that is an environmentally sound alternative to more traditional practices of landfill disposal, and as a source of clean energy that reduces greenhouse gas emissions.
Meituan-Dianping’s US$3.3 billion fundraising
CATEGORIES: Private equity; TMT
LEGAL COUNSEL: Maples and Calder, and Skadden Arps Slate Meagher & Flom acted for Internet Plus Holdings, the holding company that Meituan.com and Dianping Holding formed in October 2015. Goodwin Procter advised DST Investment and Gunderson Dettmer acted for Tencent.
KEY POINTS: The financing was the largest private fundraising in China’s internet industry and the world’s largest fundraising on record in the online to offline (O2O) sector, according to Maples and Calder.
This deal was complex due to the sheer size of the sum raised and the number of parties involved, according to Maples and Calder.
Meituan.com and Dianping Holdings were two of China’s biggest tech start-ups, providing O2O platform services. Formed by the merger of the two previous rivals last year, Meituan-Dianping raised fresh capital from investors including Chinese internet company Tencent, venture capital firm DST Global and Singapore state investment firm Temasek Holdings.
PE consortium acquires OmniVision
CATEGORIES: Overseas M&A; private equity; privatization; technology
LEGAL COUNSEL: Gibson Dunn & Crutcher acted as lead international counsel and Zhong Lun Law Firm was PRC legal counsel to the acquiring consortium. Grandall Law Firm and Wilson Sonsini Goodrich & Rosati advised OmniVision Technologies.
KEY POINTS: A China consortium acquired OmniVision Technologies, a complex US$1.9 billion US-China cross-border tech company privatization that closed on 28 January 2016.
This transaction is noteworthy as it was one of the largest acquisitions by Chinese investors in the semiconductor sector to date, and the first US acquisition by a Chinese acquirer in the semiconductor sector that obtained CFIUS clearance, says Gibson Dunn.
The transaction also entailed the divestiture of OmniVision’s Taiwan investments as a prerequisite to obtaining Taiwan regulatory approval.
Gibson Dunn says the transaction was exceptionally complex, requiring nine months to achieve signing from delivery of a non-binding offer, spanning three years from start to finish, and involving multiple changes in the consortium composition.
OmniVision is a US company that develops digital imaging chips used in mobile phones, cameras and other devices, including Apple iPhones.
Ping An acquires stake in Autohome
CATEGORIES: Insurance; M&A in China
LEGAL COUNSEL: Paul Hastings represented Ping An Insurance Group in its acquisition of a 47.4% stake in New York Stock Exchange-listed Autohome from Telstra, for US$1.6 billion. Zhong Lun Law Firm advised Ping An on PRC law. Sullivan & Cromwell and King & Wood Mallesons advised Telstra.
KEY POINTS: After the completion of this transaction, Ping An and Autohome formed a co-operative relationship to make joint efforts on the brighter development of Autohome, according to Ping An.
Listed on both the Hong Kong and Shanghai Stock Exchanges, Ping An is the second-largest insurance company in China. Under the deal, Telstra agreed to sell 47.4% of its stake in Autohome to Ping An as part of a strategic divestment of non-core assets. Telstra has retained a 6.5% interest in the group.
“A significant obstacle in the deal was the fact that Autohome’s management, backed by three private equity funds, made an offer to take Autohome private immediately after the announcement of Ping An’s acquisition of the Telstra stake,” says Paul Hastings. According to the law firm, Autohome’s management also tried to further challenge the Ping An/Telstra deal by instituting a lawsuit against the parties. Paul Hastings and Zhong Lun Law Firm helped Ping An navigate these headwinds and successfully closed the acquisition.
PSBC’s Hong Kong IPO
CATEGORIES: Banking; overseas listing
LEGAL COUNSEL: Haiwen & Partners advised Postal Savings Bank of China (PSBC) on PRC law, and Davis Polk & Wardwell advised the issuer on Hong Kong and US law. Clifford Chance and King & Wood Mallesons advised the joint sponsors and the underwriters.
KEY POINTS: This was the largest share offering globally in 2016, and in Hong Kong since 2010, says Clifford Chance. PSBC launched its IPO and was listed on the main board of the Hong Kong Stock Exchange. According to Davis Polk, PSBC raised HK$56.6 billion (US$7.3 billion) prior to any exercise of the over-allotment option, making it the world’s largest IPO in the past two years.
This IPO was significant and required cutting-edge practice and extensive experience from participating law firms. Six cornerstone investors were introduced in the listing. They jointly subscribed
approximately 6.77 billion offer shares and additional offer shares valued at US$1.55 billion. PSBC’s IPO comprised a total of 12.1 billion H shares issued globally, priced at HK$4.76 per H share. The net value raised through the IPO was approximately HK$56.6 billion.
PSBC is a commercial retail bank, which provides basic financial services, especially to small and medium enterprises, rural and low income customers.
PSBC was set up with an initial capital of RMB20 billion (US$2.87 billion) in 2007 from the State Post Bureau. Today it has RMB1.5billion in deposits and the second-largest number of branches in China.
According to Li Guohua, Chairman of PSBC, the bank’s listing in Hong Kong is an important step towards internationalization and into the capital market for PSBC, contributing to enhancing corporate governance and comprehensive competitiveness.
Qihoo 360 Technology goes private
CATEGORIES: Private equity; privatization; TMT
LEGAL COUNSEL: Latham & Watkins, and Commerce & Finance Law Offices, advised Qihoo 360 Technology. Maples and Calder, and Skadden Arps Slate Meagher & Flom, acted as legal counsel to the independent committee of the Qihoo board of directors. JunHe advised the special committee on PRC law.
Conyers Dill & Pearman, Kirkland & Ellis, and Fangda Partners, acted as Cayman, US and PRC counsel, respectively, to the buying consortium. DeHeng Law Offices advised Citic Guoan on PRC law. Appleby, AllBright Law Offices, and White & Case, were British Virgin Islands, PRC and Hong Kong legal counsel, respectively, to the lenders.
KEY POINTS: The transaction was valued at about US$9.3 billion. Based on the offer price, it was the largest take-private transaction to date, and the first transaction to use an entirely domestic buyer group structure, according to Kirkland & Ellis. The firm expects that in the future, buyers may attempt to replicate this structure so that they can also obtain a clearer path to re-listing in China.
Because of Qihoo 360’s leading position in the internet security industry and its high valuation, the transaction sets an example for the privatization of China concept stocks and red chips back to the share market, according to JunHe.
Qihoo 360 Technology, one of the largest internet companies in China, was taken private by a buyer consortium comprising more than 40 investors such as its chairman and CEO Zhou Hongyi, CITIC Securities, Ping An Insurance and others.
Sam Group acquires stake in Wolf Petroleum
CATEGORIES: Energy; overseas M&A
LEGAL COUNSEL: Chance Bridge Partners and Corrs Chambers Westgarth advised Sam Group. Steinepreis Paganin was the legal adviser for Wolf Petroleum.
KEY POINTS: Chance Bridge says it is very rare for a Chinese private-sector company to acquire an overseas listed company, and the deal presents a good example for the development of Chinese private companies. In addition, the fact that the acquired company is a petroleum company is of significance to the increase of China’s strategic petroleum reserves. For China, the world’s second-largest oil consumer and importer, the completion of the deal will boost imports of crude oil. The deal will also further extend and improve Sam Group’s industry chain, increasing its overall competitiveness and risk resilience.
The key assets of Wolf Petroleum, an Australia-listed company, are three oilfields located in the oil and gas-rich area in Mongolia. A major challenge for this deal was the fact that special attention needed to be placed on issues such as the rules for overseas-listed companies, and co-operation with overseas institutions was also required.
Sinopec acquires stake in SIBUR
CATEGORIES: Energy; overseas M&A
LEGAL COUNSEL: Vinson & Elkins served as legal counsel to Sinopec Group, and Cleary Gottlieb Steen & Hamilton advised SIBUR.
KEY POINTS: According to Vinson & Elkins, the investment represents an active implementation of China’s OBOR policy, and is also an important step in the development of strategic co-operation between China and Russia, with the partnership agreement being signed during a state visit by the Russian President Vladimir Putin to President Xi Jinping.
In one of the largest Chinese investments ever made into a Russian business, Sinopec acquired a 10% shareholding in SIBUR, Russia’s leading vertically-integrated gas processing and petrochemicals company.
“Sinopec’s acquisition of its strategic stake in SIBUR occurred at a time of significant economic and political turbulence,” says Nicholas Molan, counsel at Vinson & Elkins. “The rapid decline in energy prices and fluctuation in the market for petrochemical products created significant complexity in the valuation and strategic forecasting of the enterprise.”
According to Molan, the deal was further complicated by far-reaching sanctions regimes imposed by the US, EU and other countries and international organizations in the wake of the Russian military intervention in Ukraine. These sanctions/regimes were imposed and enhanced while the transaction was being negotiated. Wang Yupu, the chairman of Sinopec, said: “SIBUR’s vertically integrated upstream and petrochemicals business model is highly complementary with Sinopec’s businesses, [and] our continued partnership will help diversify and secure Sinopec’s long-term sourcing of petrochemical products.”
Tencent raises funds, acquires stake in Supercell
CATEGORIES: Overseas M&A; private equity; TMT
LEGAL COUNSEL: Covington & Burling and Slaughter and May acted as legal advisers to Tencent. Fenwick & West, and White & Case, advised Supercell. Morrison & Foerster, and Hannes Snellman, acted for SoftBank. AnJie Law Firm was legal counsel to Avis Trust.
KEY POINTS: According to AnJie Law Firm, the financing provided an opportunity for new investors to be involved in Tencent’s acquisition of Supercell. The acquisition is the largest M&A in the global gaming industry, and also China’s largest overseas internet M&A in terms of value.
It was a complex deal due to its complicated transaction structure, various financing methods and rights over different shares, and Tennent also had very strict requirements on equity ratio, voting rights and other demands, according to AnJie. Stock subscription was completed within just one month, and the tight schedule also contributed to the complexity.
Tencent purchased 84.3% of Supercell, a Finland-based mobile game developer, for US$8.6 billion. Meanwhile, it introduced new investors to its project company Halti, which was established for the acquisition, by raising US$850 million through the issuance of new shares. New investors, including AVIC, CITIC Capital, CITIC Bank and SPD Bank, acquired 50% of Halti.
Top Spring issues convertible bonds
CATEGORIES: Convertible bonds
LEGAL COUNSEL: Latham & Watkins acted as the issuer’s Hong Kong counsel. Commerce & Finance Law Offices was the issuer’s PRC counsel and Maples & Calder was the issuer’s BVI and Cayman Islands counsel.
JunHe and Linklaters were the placement agent’s PRC and Hong Kong counsel. Baker McKenzie, Morrison & Foerster and White & Case advised institutional investors. Li & Partners advised the keepwell provider and K&L Gates advised the trustee.
KEY POINTS: The convertible bond term included a number of high-yield covenants that were tailored for this deal. It is unusual for convertible bonds to contain high-yield covenants, says Latham & Watkins. The firm also says that the convertible bonds also have the benefit of subsidiary guarantees and share pledges, features that are not common in convertible bonds offerings, and this entailed extensive negotiations.
Yunnan Metropolitan Construction Investment Group, a substantial shareholder of Top Spring (but not its parent), agreed to provide keepwell and liquidity support for the issuer, and is also a second tranche investor. According to Latham, it is unusual for a non-parent shareholder to provide such support, and it is also unusual for a keepwell provider to subscribe for convertible bonds.
Since the keepwell provider is a substantial shareholder of the issuer, the transaction raised connected person issues under the rules of the Hong Kong Stock Exchange. Approval by the shareholders of both the issuer and the keepwell provider are required, so the offering was split into two tranches, with the second tranche scheduled to close later, says Latham. In addition, as the number of shares underlying the convertible bond exceeded the authority in the company’s current general mandate, specific shareholder approval was required for the second tranche.
Xiwang Foodstuffs takes stake in Iovate Health
CATEGORIES: Food industry; overseas M&A
LEGAL COUNSEL: King & Wood Mallesons advised Xiwang Foodstuffs. Sidley Austin acted for the buyer consortium led by Xiwang Foodstuffs. Simpson Thacher & Bartlett was counsel to Primavera Capital as a member of the buyer consortium. Goodmans was counsel to Iovate Health Sciences International. Gowling WLG provided transactional support on Canadian law.
KEY POINTS: This deal demonstrates an emerging trend in China’s outbound M&A deal-making, and a chance for sellers to be a part of the China growth story, says Sidley. The firm says that, given the shifting foreign exchange landscape, creativity and flexibility are required for outbound deals from China. Offshore takeout financing is in place post-acquisition to add leverage to the deal.
According to Sidley, the deal was also noteworthy for the speed with which it cleared all regulatory approvals in Canada, the US and China, especially against the recent backdrop of rising national security review concerns and protectionist sentiment across various Western jurisdictions. The deal attracted significant attention at the highest government levels in China and Canada.
Shenzhen-listed Xiwang Foodstuffs is a subsidiary of Xiwang Group, a China 500 enterprise.
Zhejiang Geely issues green bonds by automakers
CATEGORIES: Auto industry; clean energy; green bonds; overseas capital market
LEGAL COUNSEL: Davis Polk & Wardwell was English law counsel and Haiwen & Partners was PRC law counsel to Zhejiang Geely Holding Group. Conyers Dill & Pearman was British Virgin Islands law counsel to Geely, and King & Wood Mallesons acted as PRC and international law counsel to Geely.
KEY POINTS: With a total of US$400 million, the bonds have a coupon rate of 2.75% and will be due in 2021. King & Wood Mallesons believes that the deal will set a benchmark for other Chinese issuers planning to issue green bonds in international capital markets.
It was also the first time a PRC corporate issued a green bond after obtaining international green bond certification in accordance with the International Capital Market Association (ICMA), according to King & Wood Mallesons. Without any precedent, the working group spent tremendous efforts in researching and discussing application of the ICMA green standards to a PRC corporate and specifically how to document and satisfy all the requirements both before and after the transaction, including particularly how the use of proceeds could be traced and monitored.
King & Wood Mallesons says the deal happened during a period when China was expanding its green bond market to finance cleaner energy companies and manufacturers according to the central government’s 13th Five-Year Plan. So far, the main source of funds for green investments is still bank loans. Green bonds will be another optional source of funds for green investments.
Zheshang Bank’s Hong Kong IPO
CATEGORIES: Banking; overseas listing
LEGAL COUNSEL: Freshfields Bruckhaus Deringer advised Zheshang Bank on Hong Kong and US laws, and Zhejiang T&C Law Firm advised the bank on PRC law.
Jones Day acted as Hong Kong and US legal counsel, and King & Wood Mallesons acted as PRC counsel to all the joint sponsors and the underwriters.
KEY POINTS: This deal was the first public offering over HK$10 billion (US$1.28 billion) in 2016 in Hong Kong, says King & Wood Mallesons.
Rules in different markets needed to be considered, which increased the complexity of this case. The global offering included both the public offering in Hong Kong and the international offering outside the US in offshore transactions in reliance on regulation S, and inside the US to QIBs in reliance on rule 144A or another exemption from the registration requirements under the Securities Act.
Zheshang Bank is one of the 12 national joint-stock commercial banks in China. King & Wood Mallesons says the deal was an ice-breaker for any national joint-stock commercial bank in China, as the latest IPO of its type since 2010. The Zheshang Bank IPO secured HK$7.54 billion in commitments from five cornerstone investors, which is about 60% of its overall financing capital.
Alibaba invests in Ucar
CATEGORIES: Private equity; TMT
LEGAL COUNSEL: Han Kun Law Offices provided legal services for Ucar.
KEY POINTS: This is one of the most significant investments in China’s car-hailing industry, which greatly enhanced the influence of Ucar in this booming segment, says Han Kun. The PRC law firm assisted Ucar in designing the deal structure, preparing transaction documents, participating in the negotiation process and closing the deal.
The fundraising of RMB2.8 billion (US$402 million) from Alibaba occurred in March 2016, before Ucar was listed on the New Third Board, or the National Equities Exchange and Quotations. The transaction was successfully signed and completed within two months, despite its size and complexity.
Alibaba privatizes and takes over Youku Tudou
CATEGORIES: M&A in China; privatization; TMT
LEGAL COUNSEL: Fangda Partners, Simpson Thacher & Bartlett, and Walkers served as PRC, US and Cayman Islands legal counsel, respectively, to Alibaba Group. Shearman & Sterling represented Morgan Stanley, the financial adviser to Alibaba.
Conyers Dill & Pearman, Skadden Arps Slate Meagher & Flom and TransAsia Lawyers acted as the Cayman Islands, US and PRC legal advisers, respectively, to the special committee of the Youku Tudou board. Kirkland & Ellis advised JP Morgan, the financial adviser to the special committee. O’Melveny & Myers advised Chengwei Capital, the main shareholder of Youku Tudou.
KEY POINTS: The acquisition gave Alibaba access to more than half a billion online video users of Youku Tudou and helped it tap into the growing Chinese online video market. It was also a big step for Alibaba to complement its e-commerce sector portfolios.
According to Conyers Dill & Pearman, Alibaba’s proposed acquisition of all outstanding shares of Youku is by way of a “going-private” merger.
TransAsia Lawyers notes that the deal required speed and discretion from the professionals involved, given the scale and public nature of both parties. The firm says key challenges included achieving a balance between legal and commercial solutions, as well as co-ordinating and anticipating complex regulatory and commercial issues across several jurisdictions.
It was a significant move for Youku Tudou, which was formed by two big online video platforms Youku and Tudou in 2012. This transaction is expected to help Youku Tudou to expand in the market against other competitors like iQiyi, which was ranked first by user number in 2015 by consultancy iResearch.
Bank of Qingdao issues green bonds
CATEGORIES: Debt capital market; green industry
LEGAL COUNSEL: King & Wood Mallesons acted as PRC counsel for the issuer, Bank of Qingdao.
KEY POINTS: According to King & Wood Mallesons, it is the first issuance of green bonds among domestic city commercial banks in China. The green bond is an emerging financial instrument that aims to grant credit loans to environment-friendly enterprises. Its introduction has given players in green industries creative access to fundraising.
The King & Wood Mallesons legal team advised the bank on all sides of the green bond issuance and assisted on relevant legal issues.
The issuing amount of the first tranche of green financial bonds of 2016 by the bank totalled RMB4 billion and it would be funnelled into projects within the categories of energy conservation, pollution prevention, resource saving and recycling, clean transportation, clean energy and adaptation to climate change.
Since China’s central bank, the People’s Bank of China, released a circular on green finance in December 2015, banks such as Shanghai Pudong Development Bank and Industrial Bank have already issued green bonds valued at RMB20 billion and RMB10 billion, respectively, in January 2016.
Bank of Qingdao has become a pioneer in supporting local green industries and is expected to exert a demonstration effect for other regions in developing green finance.
BTG Hotels’ restructuring and acquisition of Home Inns Group
CATEGORIES: Asset restructuring; hotel industry; privatization
LEGAL COUNSEL: Simpson Thacher & Bartlett and Fangda Partners served as US legal counsel and PRC legal counsel, respectively, to the special committee of Homeinns Hotel Group. O’Melveny & Myers and Commerce & Finance Law Offices served as US legal counsel and PRC legal counsel, respectively, to Home Inns Group.
Maples and Calder acted as Cayman Islands legal counsel to the special committee and Homeinns Hotel Group. Skadden Arps Slate Meagher & Flom served as US legal counsel to the buyer group, while JunHe and East & Concord Partners served as PRC legal counsel to the buyer group. Walkers served as Cayman Islands legal counsel to the buyer group.
KEY POINTS: According to JunHe, BTG Hotel’s acquisition of Home Inns Group was an important and innovative case for the privatization of Chinese concept stocks and their relisting on the A-share market.
In this deal, privatization of Chinese concept stocks, restructuring of major assets of the domestic listing company, and a cross-border equity swap were carried out simultaneously. As a result, the overseas listing company was successfully turned into a subsidiary of the A-share listing company and brought back to Chinese capital markets. Such a programme is the first of its kind in the A-share market.
BTG Hotel is an A-share listing company. It established two SPVs abroad to implement the privatization of Home Inns Group, which is a US-listed company, and finally purchased 100% equity in Home Inns Group through a cross-border equity swap. In this way, it managed to turn the overseas listing company into a wholly-owned subsidiary of its own.
In the whole process, Home Inns Group was maintained as a NASDAQ-listed company. It is required to follow the operation rules both in Chinese and US capital markets, and fully co-ordinate on information disclosure of both the domestic and overseas listed companies.
Junhe says that the major asset restructuring involved multiple parties and presented a large challenge on the completion of the deal within a tight schedule with the interest of all parties taking into consideration.
The deal also involved different areas of law including Hong Kong, Cayman, Mauritius and BVI, requiring domestic lawyers to actively co-operate with their overseas peers and fully consider the different areas of law.
China Electronics Technology, Microsoft form JV
CATEGORIES: Data protection; joint venture; technology
KEY POINTS: According to Dentons, this is the first sino-foreign joint venture (JV) project established by Microsoft for the Windows 10 operating system. The JV will focus on the development of safe and advanced operating systems to provide Chinese government bodies and the state-owned enterprises with safe and reliable operating systems and services. China Electronics Technology Group is one of the country’s largest technology groups.
Dentons says the information security of operating systems has always been a focus of attention, and the central government attaches great importance to the security of operating systems, especially after the occurrence of the “prism” event in 2013 (when information was leaked from the classified surveillance program known as Prism, which was implemented by the US National Security Agency.)
Dentons’ legal team advised the Chinese company on all sides of the establishment of the joint venture, and also assisted in the communication, co-ordination and antitrust review of the deal.
After initial contact in April 2015, China Electronics Technology Group and Microsoft have undergone tough and complicated negotiations, passing the anti-monopoly review and gaining approval from the Ministry of Commerce (MOFCOM) before their announcement of the formation of the JV on 20 September 2016. A total of US$100 million has been invested in the JV, with China Electronics Technology holding a 51% stake and Microsoft holding a 49% stake.
China Merchants Shekou merges with China Merchants Property by share exchange
CATEGORIES: Capital markets; M&A
LEGAL COUNSEL: JunHe advised China Merchants Shekou Industrial Zone Holdings (CMS). Rajah & Tann and Shu Jin Law Firm advised China Merchants Property Development (CMP).
KEY POINTS: The RMB57.3 billion (US$8.7 billion) transaction is the first case of an M&A of A-shares and B-shares of an existing listed company by a non-listed company through a share swap. According to an officer of the Shenzhen Stock Exchange, it marks an important progress of capital markets in serving and supporting state-owned enterprise reforms.
Rajah & Tann notes that the structure adopted in this matter is different from the usual method of delisting. CMP arranged for CMS or a third party transferee to pay the cash consideration to the shareholders of CMP on the Singapore Exchange (SGX), in consideration for their B shares being transferred to the transferee, which then migrated such B shares to Shenzhen Stock Exchange.
The reason for this structure is that under PRC laws and regulations, only shares of CMP registered on Shenzhen Stock Exchange may be extinguished in the merger between CMP and CMS, says Rajah & Tann. The firm expects that similar exit mechanisms may set an example for the delisting of a company, which is secondary listed on SGX, under similar circumstances.
China Yangtze Power’s major asset restructuring
CATEGORIES: Asset restructuring; energy
KEY POINTS: This was one of the biggest restructurings of listed companies, involving assets of about RMB200 billion; the value of the equity transaction was about RMB80 billion. It is also the biggest transaction in the field of hydropower construction in the world to date, according to Dentons.
The firm also notes that the deal involved many stakeholders and included many construction projects that are either completed or in progress, making the purchase of relevant stakes more difficult. The multi-level relationship between various companies was another challenge.
According to Dentons, when the plan was announced at the end of 2015, it received many positive responses and helped prop up the shares. The legal work was also well recognized by authorities of state-owned assets. The project was fundamentally delivered in April 2016.
Chonggu Town PPP project in Shanghai
CATEGORIES: Infrastructure; urbanization
LEGAL COUNSEL: Dentons acted as legal counsel to Shanghai Investment Consulting Corporation, which was a consulting service organization in the deal.
City Development Law Firm acted for private investors including China Construction Eighth Engineering Division and China Construction Fangcheng Investment & Development Co. .
KEY POINTS: This was the first new-type urbanization PPP project on the outskirts of Shanghai and the city’s only PPP that has been included in a bank of recommended PPP projects by the National Development and Reform Commission (NDRC). It is regarded as a prime example for other new-type urbanization PPPs in China.
The project attracted an investment of RMB12 billion and will have a 10-year co-operation term. According to Dentons, the project required a huge amount of investment and posed difficulties with, for example, the demolition of residents’ homes in the area. A critical challenge was how to boost the local economy and enhance the living standards of local residents by introducing better management of the new town and proper industries.
Dentons advised the consulting service organization for aspects including negotiation and contract execution. City Development Law Firm offered assistance to clients in designing the transaction structure and drafting documents, among other services.
The law firm also notes that the participation of the collective capital from local villages into the new-type urbanization project was another highlight. It enabled local people to share the fruits of the urbanization and ease the difficulties with demolition and relocation.
CSSC financing for construction of six bulk carriers
CATEGORIES: Financing; shipping industry
KEY POINTS: The US$245 million 10-year club senior secured loan for the construction of six Newcastlemax bulk carriers was the first international syndicated financing for the CSSC Group, a leading state-owned shipbuilder controlling a number of the largest shipbuilders in the world. The syndicate was led by Standard Chartered Bank and Bank of America, joined by Société Générale. The facility was provided to CSSC (HK) Shipping.
WFW reviewed the loan and security documents for CSSC (HK) and ensured that its obligations under the loan and security documents were aligned, to the extent possible, with the obligations of the charterers under the charters. The firm also negotiated at all parties’ meetings on the content of the documents and co-ordinated actions with the lessee.
According to WFW, the deal shows that business continues to be successful and mutually beneficial transactions are present if parties are clear in their strategy and find the right funding.
Didi Chuxing M&A with Uber China
CATEGORIES: M&A in China; TMT
LEGAL COUNSEL: Fangda Partners and Skadden Arps Slate Meagher & Flom acted for Didi Chuxing. Davis Polk & Wardwell, Han Kun Law Offices and Walkers were the legal advisers for Uber. Weil Gotshal & Manges also participated in this deal.
KEY POINTS: In August 2016, the merger between ride-hailing giant Uber’s China branch and its Chinese counterpart attracted much attention. The marriage ended their multibillion-dollar battle for market share in China.
The merger created a company worth US$35 billion that covered a vast majority of the shares of the ride-hailing and ride-sharing market in China.
Anti-monopoly was a key issue in the transaction. Although the merger fuelled discussion on antitrust issues, it was not subject to monopoly review by authorities because both had not made profits at that time, and so had not reached the
According to Han Kun, the firm primarily assisted in the design of the transaction structure, due diligence, drafting and revising transaction documents, negotiating and closure of the deal.
The merger came days after the central government released new legislation legalizing the ride-hailing industry.
Employee placement in China Overseas Property’s acquisition of CITIC Real Estate
LEGAL COUNSEL: Zhong Lun Law Firm, with its team led by partner Duan Haiyan, offered legal advice to CITIC Real Estate on the employee placement plan.
KEY POINTS: The placement plan involved more than 10,000 employees arising from the RMB31 billion acquisition, and its success sets an example for other staff placement issues in future similar transactions, says Zhong Lun.
The acquisition of assets in CITIC Real Estate by China Overseas Property was the biggest asset purchase in China’s real estate realm in 2016, worth more than RMB100 billion.
This transaction involved the re-arrangement of human resources for both CITIC Real Estate and China Overseas Property, and a large amount of people moves. The employment issue was a major one in the deal and attracted much attention from the market.
Zhong Lun offered employment legal services covering the design, planning and execution of the placement plan structure, which helped secure the smooth delivery of the transaction.
Feng Li Group’s insolvency and restructuring
CATEGORIES: Asset restructuring
LEGAL COUNSEL: Dentons provided legal services in the restructuring.
KEY POINTS: The restructuring of Feng Li Group involves 29 entities as debtors. The number of debtors and the size of the assets and liabilities was rated the top in Jiangsu province, and has also been rare nationwide. The total amount of credit was confirmed to be RMB14 billion by the People’s Court of Zhangjiagang.
Dentons’ team proposed a diversified assets restructuring plan and debt repayment scheme in assistance of the administrator. In terms of assets disposal, part of the assets was directly realized, part was entirely transferred to a capable strategic reorganizing party, and part still belonged to Feng Li Group for further operations, so that different assets could achieve the highest value.
In terms of debt settlement, creditors can choose to be indemnified in cash or by stakes of the creditor’s holding platform so that the indemnification is more operational. When introducing strategic reorganizing parties, part of the consideration is paid in share exchange, instead of cash, so that the creditors who are optimistic about the prospects of the post-restructuring assets can share the long-term benefits.
Giant Interactive Group returns to A-share market
CATEGORIES: Back-door listing; domestic capital market
LEGAL COUNSEL: Grandall Law Firm acted for Chongqing New Century Cruise, the shell company, on its transactions with Giant Interactive. DHH Law Firm was entrusted by shareholders of Giant Interactive to issue legal opinions on New Century Cruise’s report of acquisition.
KEY POINTS: This was one of the most high-profile return listings for China concept stocks from overseas markets, and was the biggest of this kind of return in the sector of online games to date. According to Grandall, the deal took Giant Interactive, a leading online game provider, less than six months from the initial disclosure of the back-door listing plan to its eventual return to the A-share market, which was the shortest period to date for a return listing.
Despite the tight schedule and the complex and extensive restructuring of the involved parties, the legal advisers designed a cost-effective transaction structure. The back-door listing went through three steps: the sale of New Century Cruise’s major assets; New Century Cruise’s acquisition of assets from Giant Interactive; and further fundraising via the price enquiry mechanism.
The transaction was the final stage of Giant Interactive’s return to the A-share market. The company set up a red-chip structure in 2006 for its listing in New York. In 2013, it started its privatization, and dismantled the red-chip structure in 2015. After more than a year’s wait, the back-door listing of Giant Interactive finally obtained approval from regulators.
HengXinLi’s first real estate crowdfunding in China
CATEGORIES: Online financing
LEGAL COUNSEL: Harneys advised on the establishment of the platform.
KEY POINTS: This was the first online global real estate crowdfunding platform in China. It is aimed at middle-class Chinese who are interested in investing in real estate in countries such as the UK and US.
Crowd-funding by its nature tends to collect a relatively small amount of capital from each investor. It is also a regulated activity in many jurisdictions. The team from Harneys consulted with, and made submissions to, the British Virgin Islands (BVI) Financial Services Commission, which gave no objection to the proposal.
The platform had to be structured to allow several BVI companies to co-invest in another BVI company, which would then acquire the underlying property, according to Harneys.
HengXinLi is an investment management company headquartered in Shanghai with offices in the US and Ireland. Its online platform is aimed to help Chinese to invest in overseas real estate with relatively small amounts of money.
Hubei Yangtze River Economic Belt Industry Fund
CATEGORIES: Investment fund; One Belt One Road
LEGAL COUNSEL: East & Concord Partners advised on the establishment of the fund.
KEY POINTS: With a total volume of RMB200 billion, the industrial fund is the largest and most complex one in China, and has had a huge domestic impact. Aimed to tackle new economic situations and seize strategic opportunities such as “One Belt and One Road” (OBOR), the fund obtained approval from the provincial government of Hubei to have a budget of RMB40 billion as a government guide fund, and raised RMB160 billion publicly from financial institutions, enterprises and social capital.
The legal team from East & Concord advised on all sides re the establishment, operation and management of the fund. The lead partner of the team wasalso appointed to sit on the expert advisory committee. The shareholders of the fund management company consist of 40 domestic financial and investment institutions, including large banks, central enterprises and famous civilian investment institutions.
According to East & Concord, such funds have a three-tier architecture, including the guiding fund, fund of funds and sub-funds.
JD.com and Walmart form partnership
LEGAL COUNSEL: Han Kun Law Offices and Orrick Herrington Sutcliffe acted as JD.com’s legal advisers. Morrison & Foerster acted for Walmart.
KEY POINTS: This strategic alliance between JD.com, the largest online direct sales company by revenue in China, and the US retail giant Walmart, was aimed at providing superior products and services to customers in China.
The transaction involved Walmart’s acquisition of about 5% of total shares outstanding in JD.com, worth about US$1.5 billion, and the transfer to JD.com of assets used to operate Walmart’s Shanghai-based business-to-customer (B2C) online marketplace, Yihaodian.
Walmart’s China stores would also be listed as a preferred retailer on JD.com’s online delivery platform, Dada, China’s largest crowd-sourced delivery platform. Sam’s Club China, a division of Walmart Stores, would also open a flagship store on JD.com and receive its delivery support.
Kaisa Group’s debt restructuring
CATEGORIES: Debt capital market; real estate; restructuring
LEGAL COUNSEL: Ropes & Gray and Tanner De Witt acted for Kaisa Group Holdings. Harneys advised Kaisa Group on Cayman and BVI law. Kirkland & Ellis and Mourant Ozannes advised the ad hoc steering committee of the bonds and convertible bonds issued by Kaisa Group. Clifford Chance, Mayer Brown JSM, and O’Melveny & Myers acted for the creditors and certain trustees. Walkers acted for bondholders of Kaisa Group.
KEY POINTS: The US$2.6 billion restructuring of Kaisa Group’s six tranches of offshore bonds and convertible bonds was one of the most high-profile restructuring cases of the past year. Kaisa is the first Chinese property developer to default on its debt, which is valued at more than US$10 billion, both onshore and offshore. The transaction became unique and complex because its defaulted offshore bonds and convertible bonds were widely held across a variety of investors, both institutional and private.
It was implemented through parallel schemes of arrangements in Hong Kong and the Cayman Islands. According to Tanner De Witt, the restructuring of Kaisa’s offshore debt through the use of schemes of arrangement was a positive development for restructurings in Hong Kong. The firm also notes complexity with issues arising in the restructuring that had not previously been addressed much in the Hong Kong courts, with either little or no Hong Kong authority guidelines to show the way.
According to Kirkland & Ellis, the eventual restructuring proposal was a result of a highly negotiated process, and its innovation demonstrated how offshore creditors could work with onshore debtors and lenders to negotiate a complex and multi-faceted restructuring of a Chinese company.
Orient Minerva-Huaneng Guicheng’s First tranche of beneficial ownership asset-backed securitization special programme
CATEGORIES: Asset securitization
LEGAL COUNSEL: AllBright Law Offices served as legal counsel for the plan.
KEY POINTS: According to AllBright, this RMB2 billion plan was introduced against the background that profit margin became smaller for trust companies because benefits of high-quality assets fell faster than the costs of capital. The plan that combined the securitization model with trust assets could help ease the burden of costs for trust companies. The plan also reached a record-low interest rate for asset-backed securitization (ABS) plans backed by trust ownership.
In contrast with some past ABS plans backed by trust beneficial ownership, where trust companies acted merely as a channel, the trust company took the lead in the Orient Minerva-Huaneng Guicheng scheme. The trust company led in the formation of the stock assets, the design of the transactional structure, the issuance of products, the management of basic assets and other aspects of this deal.
It offered a signal that the profit model of traditional trust schemes could hardly last in the current market environment, and that vitalizing stock assets for new profit-making opportunities is one of the significant directions for the trust industry.
PAG restructures enterprise, acquires assets of Golden Apple Education Group
CATEGORIES: Education; restructuring
KEY POINTS: According to AllBright, the case has set an example for other large enterprises in Sichuan, where Golden Apple Education and restructured target Sichuan Yihe Enterprise (Group) Co were headquartered, on handling a private-debt crisis, and offered experience on how to mitigate illegal private fundraising, revitalize large enterprises via reorganization, and resolve bad debts of financial institutions.
The primary goal of the restructuring was achieved in August 2016 after the full stake in Golden Apple was successfully delivered. It enabled the restructuring parties to recover normal operation and protected about 10,000 employees from losing their jobs. In addition, more than 10,000 students at Golden Apple can continue to enjoy education resources and services from the group.
AllBright notes that the transaction was complex and posed many legal difficulties. For example, the transaction involved a complicated network of creditors, which included 20 financial institutions and 60 non-financial institutions. The enterprise was also involved in about 100 litigation cases tried by different courts in or outside Sichuan.
The debt crisis posed great debt risk for the acquirer, which tested the risk-management skills and flexible crisis handling of the AllBright team. The transaction also involved issues such as the normalization of non-performing loans.
Ping An Securities, Vanke supply chain finance asset-backed special programme No. 1 to No. 5
CATEGORIES: Asset securitization
LEGAL COUNSEL: JunZeJun Law Offices provided legal advice for this securitization scheme.
KEY POINTS: It is the first asset-backed securitization (ABS) product aimed to serve core enterprises in real estate industry and their upstream providers that has been approved by regulators, according to JunZeJun.
Ping An Securities acted as manager of the programme while Vanke and its affliated companies acted as debtors in the transaction for payables at maturity. JunZeJun advised on the package of five tranches of the special programme, which were approved by regulators in May 2016. The first four parts of the programme were established in 2016. JunZeJun assisted in the scheme on all sides including the screening of assets, the design of credit-enhancement method, the planning of the transaction and drafting of documents. JunZeJun says the transaction is a creative attempt to connect supply chain finance with the capital markets, and has become reference for other players in China’s supply chain industries and the ABS sector.
It is said that this scheme can help real estate enterprises manage the terms of receivables and cash flow while their providers can fulfil their rights as creditors to the receivables earlier than the due date. In addition, it also helps relieve financial pressure upon factoring agents for carrying out the reverse factoring business.
Poland issues the panda bonds in China
CATEGORIES: Debt capital market
LEGAL COUNSEL: Zhong Lun Law Firm acted as PRC counsel for Poland. Allen & Overy advised the Poland’s Ministry of Finance.
Global Law Office acted for the lead underwriters including Bank of China and HSBC Bank (China).
KEY POINTS: Poland is the first European nation to issue renminbi-denominated bonds in China’s domestic capital markets. It is also Poland’s first renminbi-denominated issuance.
In August 2016, after receiving approval from the People’s Bank of China, the National Association of Financial Market Institutional Investors accepted the registration of Poland to issue RMB6 billion in bonds on the inter-bank bond market in China.
Zhong Lun Law Firm assisted the Republic of Poland in the establishment of the programme and the first phase of the issuance, which included drafting and reviewing application documents, issuing legal opinions, discussion with the National Association of Financial Market Institutional Investors, and closing of the first phase.
Global Law Office says the transaction was a landmark for boosting finance and trade co-operation between China and Poland. It is also significant for opening China’s capital market.
Powerchina Roadbridge Group in four highway projects
LEGAL COUNSEL: Zhong Lun Law Firm represented PowerChina RoadBridge Group in this package of four highway construction projects.
KEY POINTS: The transaction is valued at about RMB55 billion, and one of the biggest packages of projects in the highway sector by either volume or by account of projects, according to Zhong Lun.
The introduction of two strategic investors covered a package of four highway construction projects in different provinces, including Wuyi Mountain-Shaowu highway, Chengdu Qionglai-Ya’an Mingshan highway, Zhongshan-Kaiping highway and a section of Chengdu-Chongqing highway. The different locations made the package a challenging one.
The fact that the four projects were at different phases also created hurdles for delivery of the transaction. One project had entered the toll-charging stage while some were yet to be constructed, or had been abandoned halfway. The transaction also involved other parties like state-owned asset authorities and transportation authorities, financial institutions and shareholders of the project companies.
It is also noteworthy that during delivery of the transaction, the Ministry of Finance and State-owned Assets Supervision and Administration Commission (SASAC) of the State Council released new documents to regulate transactions on state-owned assets. The new regulation had influence on the transaction.
Qian’an City sponge city PPP project
KEY POINTS: Qian’an City in Hebei province is one of the first pilot cities for sponge city construction in China. Sponge cities are designed to collect and reuse rainwater instead of draining it away. The RMB2 billion project covered dozens of projects including roads, green lands, plazas, buildings, housing communities, sewer grids and others, in an area of 21.5 square kilometres.
This project represents a large package of small projects, making arrangements more complicated, especially with co-operation, performance guarantee, payment of services fees and termination, according to JunHe.
East & Concord says the innovation of the deal is reflected in the categorization of a practical performance examination of the projects, which focuses on both the review during construction and post-construction operation.
The project refers to the performance review policy advocated by the Ministry of Finance and NDRC, instead of simply emphasizing the profit during construction, making it a good example for other projects.
Shanghai Disneyland project
CATEGORIES: Joint venture; project financing;
LEGAL COUNSEL: Baker McKenzie, Guantao Law Firm, Paul Weiss Rifkind Wharton & Garrison, and Zhong Lun Law Firm advised on the formation of the joint venture by Shanghai Shendi (Group) and the Walt Disney Company.
Jin Mao Partners acted for a loan syndicate including banks such as China Development Bank, Shanghai Pudong Development Bank and Bank of Communications.
KEY POINTS: As a landmark project in the cultural realm for China, the project is expected to have far-reaching effects on Shanghai and nearby areas, even as far as the Yangtze Delta. Its significance is not only related to tax revenue and job opportunities, but also the industrial structural transformation of the region.
The scale of investment for the Shanghai Disneyland project is estimated to reach RMB34 billion. The total amount of the syndicate loan for this project did not exceed RMB21.6 billion.
During the six years from being approved to the launch, the legal work for this project involved many aspects including regional development, construction, project financing, intellectual property, financial planning, corporate governance and dispute resolution, according to Guantao.
Shengang Securities a first under CEPA
CATEGORIES: Capital markets; joint venture; mainland-Hong Kong partnership
LEGAL COUNSEL: Llinks Law Offices advised on the setting up of Shengang Securities.
KEY POINTS: Shengang Securities is the first full-licensed securities company in the form of a Chinese-overseas joint venture set up under the Closer Economic Partnership Arrangement (CEPA) between mainland China and Hong Kong. The new company aims to become a competitive modern boutique securities underwriter.
It was jointly formed by three Hong Kong licensed financial institutions and 11 domestic institutional investors. The registered capital of Shengang Securities amounted to RMB3.5 billion, with a RMB1.22 billion investment from Hong Kong parties. Llinks provided top to bottom legal services for the transaction.
South Korea issues Panda bonds in China
CATEGORIES: Debt capital market
LEGAL COUNSEL: Bae Kim & Lee advised issuer, South Korea, on this issuance, while Global Law Office acted as PRC counsel for the issuer.
King & Wood Mallesons represented underwriters including Bank of Communications, Citi bank (China), Goldman Sachs Gao Hua Securities, HSBC (China), and Standard Chartered Bank (China), while Linklaters acted for the lead underwriters. Cleary Gottlieb Steen & Hamilton also participated in this deal as a legal counsel.
KEY POINTS: As the first renminbi bonds issued by a foreign government in China, this deal is regarded as a significant benchmark for a renminbi-dominated bond issuance by Korean companies. It is also seen as a milestone for the internationalization of the renminbi.
King & Wood Mallesons advised the joint lead underwriters in all key aspects including the preparation of offering documents in English and Chinese.
The deal may also become an important reference for panda bonds issued by other foreign governments. In January 2016, the province of British Columbia in Canada issued RMB3 billion of panda bonds in China. In August, Poland issued the first European panda bonds.
Top Resource Conservation & Environment acquires Scinor Water Technology
CATEGORIES: Environment protection; M&A in China
LEGAL COUNSEL: Grandway Law Offices acted as legal counsel for Top Resource Conservation & Environment.
KEY POINTS: This transaction brought about the first platform integrating the supply of water, electricity and gas in China, and enabled Top Resource Conservation & Environment to become a comprehensive investment service provider in the environmental protection sector. The legal team from Grandway analyzed and designed the transaction structure, conducted due diligence, negotiated with Scinor and other parties, drafted and revised transaction documents and dealt with regulators.
As a leading water treatment service provider in China, Scinor Water Technology has built many national water treatment projects employing advanced membrane technology, including the first 1,000-ton project and the first 10,000-ton seawater desalination project in the field. The company covers markets in the US, Singapore and Middle East and has participated in pioneering projects in China. This purchase was approved by China Securities Regulatory Commission with no provisions.
Wenjin industrial park PPP in Wuhan City
LEGAL COUNSEL: JunZeJun Law Offices provided legal advice for this PPP project.
KEY POINTS: This RMB17.37 billion project was an innovative model for industrial park development in the new legal environment for PPPs in the country. It has offered reference for other PPP projects involving new city area development.
According to JunZeJun, in contrast to other PPPs, the complexity and difficulty of this project is demonstrated in several aspects. As a comprehensive development of a certain area in Xinzhou district in Wuhan City, it included many construction items and complex investment return mechanisms.
An appropriate operation model and a good transactional structure were also required to meet the needs of the complex varieties of sub-projects. Finally, the long 30-year co-operation term required the legal team to fully consider the overall operational model, possible types of projects to be involved, and risk allocation between the government and private investors. The project has also involved innovative ways to arrange
World Bank issues first SDR bonds in China
CATEGORIES: Debt capital market; special drawing rights
LEGAL COUNSEL: King & Wood Mallesons represented the World Bank in this bond issuance.
KEY POINTS: This was the first special drawing rights (SDR)-denominated bond issued in China’s inter-bank bond market. It is also seen as a landmark development for the internationalization of renminbi, China’s bond market and the SDR as an international reserve asset.
In October 2016, the International Monetary Fund added renminbi into its SDR basket, which had already included the US dollar, euro, yen, and British pound.
According to King & Wood Mallesons, the transaction involved many firsts. For example, it witnessed the first active participation by offshore investors in subscriptions for SDR bonds in the inter-bank bond market. It also marked a first for the hedging of payments due under the SDR bonds.
Anti-dumping investigations by Eurasian Economic Union into Chinese bulldozer manufacturers
CATEGORIES: Anti-dumping; dispute; machine manufacturing
LEGAL COUNSEL: The team of East & Concord Partners, led by partner Wang Di, as well as Dentons’ team, led by Rudi Lelue, the firm’s director of international trade at its Brussels office, represented the largest Chinese export manufacturer involved in this case in response to the anti-dumping investigation, and represented the entire Chinese industry in its non-injury defence.
KEY POINTS: According to East & Concord, this case is the first anti-dumping investigation against Chinese engineering machinery products. As the largest Chinese export manufacturer involved in this case and the primary target of the investigation, Shantui Construction Machinery eventually gained an import duty significantly below the generally applied level, and successfully maintained its competitive advantages in the Eurasian Economic Union market.
East & Concord says this case is a successful collaboration between the Chinese government, the chamber of commerce, enterprises and lawyers. It has set an example for potential anti-dumping investigations that may be encountered by Chinese engineering machinery products in the future, and has provided valuable experience for China’s industries and enterprises regarding anti-dumping investigations initiated by the Eurasian Economic Union.
China party wins malleable cast-iron pipe fittings anti-dumping case before the European Court of First Instance
CATEGORIES: Anti-dumping; dispute
LEGAL COUNSEL: AllBright Law Offices and Jones Day acted as legal counsel for the Chinese party, Jinan Meide Casting.
KEY POINTS: The European Court of First Instance ruled on 30 June 2016 that Jinan Meide Casting prevailed in an anti-dumping case over malleable cast-iron pipe fittings, which started in 2012. AllBright says the ruling is not only an example for the application of surrogate country, but also helped the Chinese enterprises recoup their losses, with €40 million (US$41.8 million) in taxes returned.
This case started in February 2012, when the European Commission (EC) launched an anti-dumping investigation against malleable cast-iron fittings from China, Thailand and Indonesia. India was used as the surrogate country to calculate the normal value. In May 2013, the EC ruled that the import duties for
Chinese companies were from 24.6% to 57.8%, and the anti-dumping duty for Jinan Meide Casting was 40.8%.
Acting on behalf of Jinan Meide Casting, AllBright and Jones Day appealed to the European Court of First Instance on four grounds, the first one being that the EC didn’t fully disclose its calculation of the dumping margin. According to AllBright, the court addressed only the first ground and ruled that the EC didn’t fully disclose its anti-dumping margin calculation in the investigation, and therefore its ruling against Jinan Meide Casting was invalid. Regarding the other three grounds, the court applied the “judicial economy” principle and believed that they didn’t have to be reviewed since the EC’s ruling had already been thrown out based on the first ground.
In this case, the Chinese party’s legal counsel successfully challenged the EU’s unsound surrogate country system by making the best use of the principles of full information disclosure and fair price comparison established by the iron or steel fasteners case between China and the EC (DS397).
Chinese parties win vitamin C antitrust litigation in the US
CATEGORIES: Antitrust; overseas litigation
LEGAL COUNSEL: Sidley Austin acted for the Ministry of Commerce (MOFCOM). Wilson Sonsini Goodrich & Rosati represented the Chinese defendants Hebei Welcome Pharmaceutical and its affiliated company, North China Pharmaceutical Group.
KEY POINTS: This case raised thorny questions of how US courts should treat foreign companies accused of violating US antitrust law when they are following mandates of a foreign government, says Sidley Austin.
At the start of this 12-year dispute, the US plaintiffs alleged that the Chinese manufacturers had colluded to fix prices of vitamin C exported into the US. In 2013, a district court found the companies liable for violating US antitrust law and awarded US$147 million in damages.
MOFCOM participated in the case as amicus curiae (a friend of the court) and urged the US judges to dismiss the case against the Chinese companies. According to Sidley, it was the first time that a Chinese government authority has participated in such a fashion in a US court.
In September 2016, the US Court of Appeals for the Second Circuit vacated the district court’s judgment against the Chinese defendants, holding that the case should have been dismissed after MOFCOM filed a formal statement in the district court asserting that PRC law required defendants to set prices and reduce quantities of vitamin C sold abroad.
Daiichi Sankyo successfully defends validity of its Chinese patent
CATEGORIES: Dispute; patent; pharmaceuticals
LEGAL COUNSEL: China Patent Agent (HK) was entrusted by the patentee, Daiichi Sankyo, to file an appeal with the Beijing Higher People’s Court.
KEY POINTS: A petitioner requested the Patent Re-examination Board (PRB) to invalidate the No. 01815108.6 patent, which is owned by Daiichi Sankyo together with another patentee, and related to the hydrochloride or maleate of prasugrel.
One of the most controversial issues in this case was whether the disputed patent possessed inventiveness – in this case, having achieved unexpected technical effects – over the prior art as claimed in two other existing patents. The PRB believed the patentee’s comparison of the hydrochloride and maleate of prasugrel merely with the free alkali of prasugrel, rather than other salts published by the prior art as well, was not sufficient to prove the inventiveness of the disputed patent.
The disputed patent was invalidated by the PRB in December 2012, and later the first instance court decided in support of the board’s decision. The second instance judgment, however, issued by the Beijing Higher People’s Court, revoked both the first instance judgment and the PRB decision on the request for invalidation.
The second instance judgment points out that the prior art does not provide the clear effects of specific pharmaceutical salts of prasugrel, and that while the two other existing patents include prasugrel and its related pharmaceutical salts, those skilled in the art can predict, based on general cognition, that prasugrel and its pharmaceutical salts have basically the same technical effect. Therefore, the description of the disputed patent – which compares the hydrochloride and maleate of prasugrel with the free alkali of prasugrel to explain the outstanding technical effects of the present patent – conforms to the practice of comparing the new technical solution with the closest prior art.
Hyundai Insurance wins reinsurance contract dispute
CATEGORIES: Dispute; insurance
LEGAL COUNSEL: King & Wood Mallesons (KWM) represented the plaintiff, Hyundai Insurance (China).
KEY POINTS: This case sets a precedent in a reinsurance contract dispute. According to KWM, its outcome bears significant importance to the standardization of the reinsurance industry and the improvement of relevant administrative regulations and rules. The issue in dispute, a fire accident at SK Hynix Conductor, was then the largest domestic insurance claim involving total damages of US$800 million. The focus of the dispute was whether the reinsurance contract had been established.
According to KWM, reinsurance contracts are signed between specialized insurance companies, and compared with common commercial contracts the signing of reinsurance contracts requires more practical skills and expertise. However, China’s Insurance Law and relevant judicial interpretations contain no rules governing the conditions for establishing reinsurance contracts.
The law firm says the court in this case interpreted the parties’ real intention expressed in the process of entering into the contract based on their demonstration of the business and industrial practices, and had decided on whether the reinsurance contract was established by applying the principle of good faith.
Sihua Tech’s series of patent infringement cases
CATEGORIES: Dispute; patent
LEGAL COUNSEL: King & Wood Mallesons (KWM) acted as the litigation lawyer for Shanghai Sihua Technologies
KEY POINTS: KWM says that this is a typical case in which a patent troll files patent lawsuits during the sensitive period for the listing of a target company. Faced with the series of patent infringement cases, KWM’s team managed to end the dispute with counter-measures and helped the client navigate through the listing sensitive period. This is also the first patent case heard by the Shanghai Intellectual Property Court with a technical research officer and expert juror involved.
Sihua Tech focuses on CDN technology. During the period when it was waiting for the approval of its listing application, it received an infringement letter from the troll company’s lawyer, which alleged that Sihua Tech might have infringed its 28 patents, for which it had the exclusive right. The letter was also copied to the sponsor and law firm that Sihua Tech had engaged for the purpose of its listing, thus creating an obstacle for Sihua’s listing.
Sihua denied this allegation. The troll company then filed two civil lawsuits with the Shanghai Intellectual Property Court for the alleged patent infringement by Sihua Tech and claimed damages of RMB20 million (US$2.87 million). While representing Sihua to deal with the lawsuits filed by the troll company, KWM filed two applications with the Beijing Patent Re-examination Board for the invalidity of the troll company’s patents. At the same time, it acted for Sihua Tech to lodge two other lawsuits for malicious litigation and unfair competition, also claiming damages of RMB20 million.
KWM says that the counter-measures put the troll company and its legal team under huge pressure. Shortly after that, it contacted Sihua Tech voluntarily and the two parties then reached a settlement agreement.
Tall & Stout Industrial Corporation (Shenzhen) and Water Solutions’ (Hong Kong) dispute over validity of a foreign-related arbitration clause
CATEGORIES: Dispute; arbitration clause
LEGAL COUNSEL: Tian Yuan Law Firm acted as the sole legal counsel for Water Solutions (Hong Kong), with the team led by its Shenzhen partner, Gao Wenjie. The Hong Kong and Los Angeles offices of Squire Patton Boggs advised Water Solutions on the case detail demonstration, notarization, authentication and other legal affairs.
KEY POINTS: Tian Yuan says this is one of the very rare cases in which a Chinese court determined and applied the foreign law for its ruling. It is also China’s first case in which the California and US Federal law have been applied to affirm the validity of the foreign-related arbitration clause. This is also the first one in which Benchmark Chambers International, China’s first platform for the determination of the foreign law, had been engaged by the court to determine the foreign law.
The applicant, Water Solutions (Hong Kong), filed an application with the Shenzhen Intermediate People’s Court requesting the court to affirm the validity of the arbitration clause in the manufacturing and supply agreement signed with the respondent, Tall & Stout Industrial Corporation (Shenzhen), on 11 September 2007. According to the provisions of article 18 of the PRC Law on the Application of Laws for Foreign-related Civil Relations, the parties agreed to apply the California law in the case of arbitration.
The Shenzhen court finally affirmed the validity of the arbitration clause in question.
Tian Yuan says this case can serve as an example for the mainland courts to apply the Law on the Application of Laws for Foreign-related Civil Relations to investigate and apply the foreign law, and it plays an important role in increasing the international credibility of China’s judicial system.
Tencent wins back its WeChat domain name
CATEGORIES: Dispute; domain name
LEGAL COUNSEL: Hogan Lovells’ team, led by Hong Kong partner Eugene Low, represented Tencent
KEY POINTS: Tencent won back the domain name for WeChat, its popular social network app, under the uniform domain name dispute resolution policy (UDRP). The domain name involved is “weixin.com”, with “weixin” being the Mandarin transliteration of the WeChat’s original Chinese name.
The case was high-profile and complex, said Hogan Lovells. Under the UDRP, Tencent is required to prove bad faith in the registration and use of the domain name by the registrant, but this was not straightforward because the domain name was registered in 2000, before Tencent launched WeChat in 2011.
Hogan Lovells overcame the difficulty by tracking down the transfer history. With sufficient evidence of the transfer of the domain name, the firm was able to convince the UDRP panel that the subsequent transfer – rather than the initial registration of the domain name – was carried out in bad faith in order to take advantage of the popularity of WeChat in China, and throughout the world.
WKW Automotive and WKW Erbslöh Automotive’s dispute over non-compete agreements
CATEGORIES: Dispute; labour; non-competition
LEGAL COUNSEL: Jian Yuan Law Offices represented WKW Automotive in the arbitration and litigation
KEY POINTS: According to Jia Yuan, this is the first dispute in China’s capital market caused due to a major shareholder’s breach of non-competition commitment and the market division agreement. Regarding the resolution of such a dispute, there is neither sufficient applicable legislation nor similar precedents for reference, but the case was still successfully resolved through international arbitration, litigation and settlement between the parties. Jia Yuan says the case is of great significance in terms of protecting the interest of China’s listed companies and small and medium shareholders.
In August 2013, WKW Automotive filed an application for arbitration with the China International Economic and Trade Arbitration Commission, which issued an arbitral award in April 2015. In September 2015, the German party applied with the Beijing No.4 Intermediate People’s Court for cancellation of the award, but was rejected in November. In October 2015, WKW Automotive filed a lawsuit with the Beijing Higher People’s Court alleging violation of non-competition. In November 2015, WKW Automotive and the German party reached a settlement agreement, in which the German party agreed to compensate WKW Automotive for RMB270 million (US$38.85 million).
WorldQuant’s wholly owned subsidiary in China wins labour arbitration and litigation
CATEGORIES: Dispute; labour; non-competition
KEY POINTS: DaHui says China’s labour law was enacted by applying the principle of protecting the rights of workers and, in arbitration and judicial practice, labour arbitration committees and courts also tend to protect the rights of workers for social harmony and other considerations. In this case, however, both the labour arbitration committee and the court of first instance ordered the worker to compensate the employer for damages of nearly RMB1 million (US$143,000).
According to DaHui, it is very rare that such a huge amount of damages was awarded against a worker in China’s history of judicial practice of labour law, so this case marks a milestone for foreign-invested enterprises to protect their rights by applying the Chinese law in labour disputes.
WorldQuant won the labour arbitration and litigation in March and September 2016, respectively. The company’s former employee, i.e., the opposite party in the arbitration/litigation, was ordered to pay a huge amount of damages, and the contractual provisions regarding non-competition were effectively implemented. DaHui indicates that the arbitration committee and the court had made some breakthrough decisions in relation to whether the clause regarding the liability for breaching non-competition was valid, whether a rival relationship was created, and how the damages should be calculated, and the court established some important new principles.
Xiaomi responds to privacy protection investigations
LEGAL COUNSEL: Rajah & Tann advised Xiaomi in responding to investigations by the Personal Data Protection Commission (PDPC) of Singapore, and the Office of the Privacy Commissioner for Personal Data of Hong Kong, regarding allegations of data breaches from the use of Xiaomi smartphones. Koh Vass & Co, a Hong Kong law firm, advised Xiaomi on Hong Kong privacy and personal data law.
KEY POINTS: This project gains its significance due to the highly publicized cross-border nature of the allegations against Xiaomi, one of the world’s largest smartphone distributors, said Rajah & Tann, adding that this is also one of the first and the most high-profile enforcement actions taken by the data protection commissioner in Singapore.
To avoid PDPC enforcement, Xiaomi had to sign a voluntary undertaking. Rajah & Tann advised the Chinese company on the content of the voluntary undertaking and the implementation plan required in accordance with the undertaking. The PDPC finally confirmed Xiaomi had fulfilled all terms of the undertaking.
Rajah & Tann’s mandate from Xiaomi has also extended to India, Indonesia, the UK and the US.