Chinese Companies Restructuring for a Listing on NYSE Euronext Paris

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1 1 Chinese Companies Restructuring for a Listing on NYSE Euronext Paris TransAsia Lawyers Shanghai, December 1 st, 2010 PudongShangri-La Hotel Outline 2 Introduction Legal background of direct listing & Indirect listing Indirect listing (establishment of a outside the scope of DD and legal opinion

2 Direct Listing 3 Direct listing Circular on Certain Issues Concerning the Overseas Listing of Companies Approval from CSRC required Only applicable for very large IPO (BOC, ICBC) Indirect listing (Regulatory environment) MOFCOM approval for inbound acquisition under Circular 10 CSRC approval for 3 Operating Entity SAFE registration Circular 75

3 Indirect listing (Basic Steps) 5 Basic steps for indirect listing Step 1 Establishment of offshore Step 2 Restructuring of existing Chinese companiesand making of the Chinese business indirectly/directly controlled by the Step 3 IPO of the Indirect Listing (Establishment of a ) 6 Registration location of the Luxembourg Hong Kong Tax considerations opportunity of HK Co (or other jurisdiction with China favorable tax treaty) How to hold shares in the Natural person directly holding shares Natural person holding shares through an offshore investment vehicle

4 Indirect listing (Establishment of a outside the scope of 1. VIE Structure 7 Operating Entity controls operating entity via contractual arrangements Applicable for restricted and nonrestricted sector Indirect listing (Establishment of a outside the scope of 2. Trustee Structure 8 Foreign trustee Operating Entity Chinese founder has close relationship with foreign trustee controls the operating entity by equity acquisition Non-restricted sector to foreign investor

5 Indirect listing (Establishment of a outside the scope of 3. 9 Operating Entity established before Circular 10 (Sep 2006) controls the operating entity by equity acquisition Non-restricted sector to foreign investor Indirect listing (Establishment of a outside the scope of 4. JV 10 Before After JV established before Circular 75 (Oct 2005) JV partner acquires the Chinese partner s equity and change JV to JV Non-restricted sector to foreign investor

6 IPO --- Legal DD scope 11 The legal DD will be carried out: On the company (establishment, existence and current status) On the company s assets (real estate, land use right, intellectual property, etc.) On the company s products (compliance with regulatory and licensing requirements) On the company s human resources (compliance with regulatory requirements and labour contracts) On the company s shareholders (legality of shares/equity held in the company, legitimacy of status of shareholders, etc.) On the company s operation (all licences, permits, certificates held by the company, litigation/arbitration against the company, administrative procedures involving the company, all material contracts to which the company is a party, etc.) IPO--- Legal DD key issues 12 Issues which are most often identified during the legal DD process: Unclear shareholding structure during the early stages of the company s history: could impact on restructuring and IPO process Unpaid or underpaid social insurance for employees (or voluntary optout): could impact on profitability Underpaid land premium (but with land use right certificates in place): could impact legality of the land use right Unclear environmental impact: possible exposure to environmental liability

7 Legal Opinion 13 Legal Opinion The existence and operation of the company The legality of the and listing structure Recommendations If you have not started business, consult with your counsel to set up the right corporate structure at the beginning If you have a project to be listed in Paris, consult with your IB or counsel to review the legality of the existing structure and make adjustment, if necessary TransAsia Lawyers IPO Experience 14 Sohu.com (NASDAQ:SOHU) - 1 of the top 3 portals in China Xinyuan (NYSY: XIN) - 1st Asian real estate company listed in NYSE China Cablecom (NASDAQ:CABL) Youku.com (filings with SEC)

8 15 TransAsia Lawyers Elaine Huang 电话 : 电邮 : ehuang@transasialawyers.com