CHINA Law and Practice Contributed by: Nelson Zhou, Yifeng Yuan, Jianwei Yang and Jingbo Zhou, JunHe LLP
60% to 80%, reducing the mandatory equity contribution from 40% to 20%. Furthermore, the maximum loan term for tech company M&A transactions was extended from seven years to ten years. This policy significantly eases fund- ing and repayment pressures, creating a more favourable environment for tech company M&A activities.
PRC branches of international banks can only accept and execute the Chinese version of loan documents when their borrowers are PRC local companies, while the prevailing market prac- tice is to adopt the English version for the facil- ity agreement (with the Chinese translation or summary) and the Chinese version for security documents, to accommodate local registration requirements. 2.4 Opinions Counsels are expected to cover the following aspects in their opinion: • due incorporation and the valid existence of the borrower; • authorisation of finance documents; • due execution, not conflicting with the law, legality, validity and enforceability of finance documents; • creation of security; • applicable tax; • choice of law; and • dispute resolution and venue. PRC lenders may also look for opinions on com- pliance with certain regulatory requirements, including the foreign debt registration as required by the National Development and Reform Com- mission of China and/or the State Administration of Foreign Exchange of China (SAFE), the LTV/ LTC regulatory ratio, etc.
2. Documentation 2.1 Governing Law
For complex acquisition finance/LBOs where the borrower is an offshore entity, Hong Kong law is frequently used and accepted by lenders and sponsors. PRC law has been the prevailing choice for domestic corporate and acquisition loans where both lenders and borrowers are onshore entities. 2.2 Use of Loan Market Association (LMA) Agreements or Other Standard Loans APLMA standard documents are widely used in cross-border transactions in this region. For domestic transactions (particularly where the lenders are Chinese banks), local Chinese banks normally encourage the use of template docu- ments formulated by each bank or those pre- pared by the China Banking Association. 2.3 Language For complicated leveraged financing transac- tions with foreign sponsors, Chinese banks can accept and execute the English version of loan documents (with no Chinese translation or Chi- nese version), according to the PRC counsel’s opinion in reconciling the consistency of English terms with their credit committee approvals.
3. Structures 3.1 Senior Loans
To contemplate an easier route of investment exit given the cross-border foreign exchange con- trol (from the investor’s perspective) and enjoy certain tax benefits offered by an offshore sale structure (from the seller’s perspective), sellers
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