Knowledge key to gaining approval for trust company acquisitions

According to data released by the Trustee Association, the trust assets of trust companies reached RMB5.5 trillion (US$876.2 billion) in value during the first half of this year, far exceeding the value of the assets of the securities and fund industries. Trust companies have regularly realised growth against expectations and have become the growth standouts in the financial industry, attracting domestic and foreign investors like flies to honey. The author wishes to share here the legal practice issues involved in the acquisitions and restructurings of a number of domestic trust companies.

Basis of acquisitions

Trust companies, as non-banking financial institutions, are regulated by the China Banking Regulatory Commission (CBRC) in China and acquisitions thereof also require the CBRC approval (excluding holdings of less than 5% of the total outstanding tradable shares of listed trust companies). Such acquisitions are governed by the Implementing Measures for Items of Non-banking Financial Institutions that are Subject to Administrative Permissions and the Requirements in Respect of the List and Format of Application Materials for Items of Non-banking Financial Institutions that are Subject to Administrative Permissions.

Acquisition qualifications

Stringent access conditions are in place for trust company investors, to avoid trust companies becoming a financing instrument. As an example, take the following requirements for non-banking financial institutions in China to: (1) be an enterprise as legal person; (2) have a good reputation, a good credit and a tax payment record; (3) have no major violations of laws or regulations within the latest two years; (4) be profitable for the past two years; (5) have net assets not less than 30% of its total assets; (6) have funds used to acquire equity stakes being genuine and lawful, not a loan or funds entrusted by others; (7) ensure a single investor and connected persons that have taken an equity stake in the trust company do not exceed two, and of them not more than one being an absolute controller; (8) prohibit transferring the equities of the trust company, pledging the said equities or establishing a trust by the said equities within three years; (9) ensure that in principle, the balance of its equity-type investments does not exceed 50% of its net assets.

Wang Tao is a partner based in the Shenzhen office at Concord & Partners; Yu Yi is an intern based in the Shenzhen office at Concord & Partners