Buybacks of BT projects invested in by SOEs are a cause for confusion

All build-transfer (BT) projects involve the issue of a buyback, and whether BT projects invested in by state-owned enterprises (SOEs) need to go through an open bid on a property rights exchange has consistently confounded numerous SOEs.

Asset buybacks and equity buybacks are the two BT project buyback methods, and where the investor is responsible for all of the investment, the buyback will normally be an asset buyback (and in law, it may also take the form of a buyback of 100% of the equity). Where the investor’s investment only accounts for a portion of the equity, the buyback may only be an equity buyback, but it does not change the essential features of the BT investment/financing model.

Competitive bidding

Pursuant to the Enterprise State-owned Asset Law and the Provisional Measures for the Administration of the Transfer of the State-owned Assets of Enterprises, the transfer of state-owned assets or state-owned equity needs to be carried out through a competitive bid on a property rights exchange, except where such a transfer may be affected by an agreement. However, no current laws or regulations provide any exceptions as to whether, in a BT project, the asset or equity buyback by an SOE, as the investor, needs to be carried out through a listing on an exchange.

Wang Jihong is deputy director of the Environment, Resource and Energy Law Committee, All China Lawyers Association；Xie Yi also contributed to this article