Tech upgrade, transformation and relocation for M&A

In recent years, many high-pollution and hazardous chemical enterprises have been required to eliminate outdated production facilities, change their lines of production or simply close down their business or relocate assets, as required by governmental regulations such as the Notification on Stopping Industries with Overcapacity from Further Blind Expansion, and the Guidelines on Solving the Crisis of Severe Overcapacity, with a view to helping with the national drive for supply-side reform. Local governments have formulated regulations to facilitate gradient industrial transfer and assets relocation to meet the needs of strategic development, environment protection and urbanization.

Usually, these enterprises need to raise funds to cover the costs associated with land, tax, new plants, new technologies and development of new business lines. Investors, on the other hand, might be interested in their industrial position, technologies and management know-how, and therefore plan to acquire a stake or invest in these enterprises. Some facts about enterprises to be relocated – mostly high-pollution and hazardous chemical enterprises – however, should be noted before any transaction is initiated.

For one thing, these enterprises, especially manufacturers of hazardous chemicals with heavy pollution, might have already closed down their businesses, as required by the government, before such a deal was underway. And their land use rights for an old plant might be terminated, or about to be terminated, while the new plant is still undergoing start-up formalities. What’s more, the production facilities might still be located in the old plant.

Sun Yunzhu is a partner and Zou Qing is an associate in the Shenzhen office of East & Concord Partners