A-share exits are now viable

Author: | Published: 25 Mar 2010

Restructuring a Chinese company offshore to pursue a traditional red-chip listing in Hong Kong or the US has become a difficult if not wholly unviable exit for foreign private equity in China since September 8 2006, when the new M&A Rules and certain of its provisions commonly referred to as Regulation 10 came into effect.

Investors were left with three options. First, pursue red-chips that had already restructured offshore prior to September 8 2006 and were therefore grandfathered from Regulation 10. Second, in a limited number of cases, implement holding structures that would avoid the round-trip investment feature (where the original PRC shareholders of the Chinese company become holders of an offshore company that owns it) of red-chip restructuring since such feature is the trigger for Regulation 10. And third, channel financial investing through a strategic FDI channel – using direct onshore investments through the PRC joint venture law...