Disposal of state-owned assets in the course of equity acquisitions

In recent years there has been a significant increase in the number of Chinese state-owned enterprises (SOEs) involved in M&A transactions. Given the special nature of state-owned assets, these equity acquisitions raise various issues regarding the disposal of state-owned assets, including in particular transfers of state-owned equity and capital increases in SOEs.

Transfer of state-owned equity

If the state-owned shareholder of a targeted company decides to sell its shares, it must follow the rules set out in the Administration of the Transfer of the State-owned Equity of Enterprises Provisional Measures, jointly issued by the State-owned Assets Supervision and Administration Commission of the State Council and the Ministry of Finance. First, it should consider the matter internally and make a written resolution. In the case of a wholly state-owned enterprise, deliberations should be conducted at a general managers’ working meeting. At a wholly state-owned company, they should be conducted by the board of directors of its state-owned shareholder or, if it does not have a board of directors, at a general manager’s working meeting.

Once the transfer of state-owned equity is approved, the state-owned shareholder must arrange for the target company to assess its assets and verify its capital, and appoint an accounting firm to conduct an audit. In addition, it must appoint an asset appraisal firm to appraise the assets of the target company. If the sale of the state-owned equity will result in the seller losing its controlling stake in the enterprise, the state-owned asset supervision and administration authority will appoint relevant firms to value its assets and verify its capital.

Zhang Meiying is a partner at Concord & Partners

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