Central SOEs transferring offshore property rights to acquirers

As state-owned enterprises (SOEs) slow down their pace of merger and acquisition (M&A) activities as part of their “going global” programmes, and given the national policies in recent years and other considerations, it is not uncommon that SOEs start transferring their offshore state-owned property rights. Transfer of offshore state-owned property rights by central SOEs is particularly worthy of attention. According to the Interim Measures for the Administration of Offshore State-owned Property Rights of Central State-owned Enterprises (Order No. 27), “offshore state-owned property rights” are equities arising from investment by central SOEs, and their subsidiaries of various tiers, through various approaches in their offshore enterprises, which refer to enterprises incorporated according to local laws by central SOEs and their subsidiaries of various tiers in locations outside mainland China, including in Hong Kong, Macau and Taiwan.

Are the property rights required to be transferred through exchanges? Pursuant to Article 12 of Order No. 27, central SOEs and their subsidiaries should compare interested buyers in many aspects before selecting the transferees of their offshore property rights. Where possible, they should (1) solicit interested buyers publicly and select the transferees through a competitive bidding process, or (2) have their property rights listed on pilot exchanges for state-owned property rights of central SOEs for sale. According to this provision, central SOEs and their subsidiaries of various tiers are not mandatorily required to transfer their offshore property rights via exchanges. Although comparing interested buyers in diverse aspects is required before the transferees are determined, a competitive bidding process or listing on designated exchanges for sale is not mandatory. In particular, if central SOEs and their subsidiaries lack the above conditions (1) or (2), the seller and buyer may effect the transfer with an agreement.

However, according to the Measures for the Supervision and Administration of Trading of State-Owned Assets of Enterprises (Order No. 32), generally onshore state-owned property rights must be traded publicly through asset markets.

Liu Xiaoyan is a partner at East & Concord Partners

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