China to Permit Qualified Commercial Banks to Issue M&A Loans

On December 6, 2008, the China Banking Regulatory Commission ("CBRC") released the Guidance for the Risk Management of Merger and Acquisition Loans of Commercial Banks (the "Guidance"), which became effective on the same date. The Guidance expressly allows qualified commercial banks to issue loans to onshore acquiring companies for financing merger and acquisition projects, although prior to the issuance of the Guidance a borrower normally was not permitted to use commercial loans to finance equity investment. The merger and acquisition transactions referred to in the Guidance include the purchase of existing equity, subscription of newly issued equity, purchase of assets or succession of debts and other related matters, for the purpose of merger or actual control of the target entity. The loans borrowed shall not exceed 50% of the total funds for a merger and acquisition project, and the term of the loans normally shall not exceed five years. As the Guidance is newly-issued, its effect remains to be tested in real cases. At present, it is unclear whether onshore acquiring companies qualified for the loans shall include foreign-invested enterprises, which have been treated as onshore companies in many aspects.


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