China Business Law Journal presents the second half of our selection of significant transactions from last year, and the domestic and international law firms behind them. By George W Russell and Raymond Yang
Following a lengthy period of research and consultation, we compiled a collection of landmark transactions concluded from December 2009 to the end of 2010. In the February issue of the magazine, we featured our selections in a number of key business sectors. In this issue, we present part two, with our selection of deals of the year in domestic IPOs, domestic M&A, inbound M&A and foreign direct investment, private equity & venture capital, environment & natural resources, and dispute resolution.
The winning deals and cases have been chosen subjectively based on transactional data, submissions received from PRC and international law firms, and interviews conducted with China-focused legal and corporate professionals.
In arriving at decisions on the winning deals and cases, our editorial team evaluated the significance of all shortlisted contenders from a legal and regulatory standpoint. The value, uniqueness and complexity of each deal or case were taken into consideration, as were any precedents that may have been established for the future.
Capital markets deals of the year – domestic IPOs
King & Wood advised China Everbright Bank, China’s sixth largest joint-stock commercial bank, in its US$3.23 billion initial public offering. Everbright, which had been planning an IPO since June 2008, floated its shares in Shanghai on 18 August in China’s second-largest A-share IPO of 2010. Beijing partners Yang Xiaolei, Gong Mulong and Su Zheng led the firm’s team. Haiwen & Partners advised the underwriters, China Jianyin Investment Securities, Shenyin & Wanguo Securities and China International Capital Corporation.
China XD Electric listed on the Shanghai Stock Exchange on 28 January 2010, raising over RMB10.3 billion (US$1.5 billion).
Commerce & Finance Law Offices acted as counsel to the issuer, led by Cheng Li and Zhang Xiaoman. Haiwen & Partners advised the lead underwriter, China International Capital Corporation, with a team comprising Wu Zhisheng, Yang Jingfang and Li Liping.
By sales volume, XD Electric is the largest manufacturer of electricity transmission equipment in China. In October 2010, as general contractor, it signed a deal on a power transmission project in Jeju Island, South Korea, and thus became the first Chinese contractor to work on an overseas project of this kind.
Haiwen & Partners advised Ningbo Port Co on its IPO, which raised RMB7.4 billion for the issuer, based in Ningbo, Zhejiang, which is the world’s second-largest port operator by throughput. The IPO was China’s sixth-largest during 2010.
Commerce & Finance Law Offices represented the underwriter, BOC International.
Shanghai law firm Chen & Co advised WUS Printed Circuit (Kunshan) Company in connection with the Kunshan, Jiangsu-based company raising RMB1.28 billion in the largest A-share offering by a Taiwanese-invested company to date. Partner Arthur Chen Zhijun led the firm’s team, which served as lead counsel to issuer and advised on PRC legal compliance.
Mergers & acquisitions deals of the year – domestic
China Mobile agreed to buy 20% of Shanghai Pudong Development Bank through its subsidiary, Guangdong Mobile, for RMB39.8 billion to enable the formation of a strategic alliance to offer wireless finance services including mobile bank cards and payment services.
Shanghai United Law Firm, led by senior partner Jiang Xian, advised long-time client Shanghai Pudong Development Bank.
The animal-vaccine unit of Harbin Pharmaceutical Group acquired the swine-vaccine division of global drug giant Pfizer in China’s first government-mandated divestment under the PRC Anti-monopoly Law. Pfizer sold its China operations for making its RespiSure line of Mycoplasma hyopneumoniae vaccines to Harbin Bio-Vaccine.
Chen & Co partner Lin Zhong and of counsel Seth Libby advised Harbin Pharmaceutical Group and Harbin Bio-Vaccine. Campbell Izzard, a lawyer in Shanghai with Clifford Chance, headed a team advising Pfizer. King & Wood senior partner Susan Ning in New York advised Pfizer on PRC law.
The anti-trust division at the Ministry of Commerce (MOFCOM) required the divestment as a condition for approving Pfizer’s US$68 billion merger with Wyeth, which closed in October 2009. “This was the first MOFCOM-ordered disposal under the Anti-monopoly Law to be completed since the law’s implementation in 2008,” says Libby.
Long-time counsel Commerce & Finance Law Offices advised China Eastern Airlines in the merger. Baker & McKenzie, under Hong Kong partner Jackie Lo, acted as Hong Kong counsel to China Eastern Airlines, which is listed in Hong Kong and Shanghai.
Fangda Partners represented Shanghai Airlines in both its restructuring and the subsequent merger.
China Minmetals Nonferrous Metal, a wholly owned subsidiary of China Minmetals Group, paid RMB6 billion to buy a 51% stake in Hunan Nonferrous Metals Holding Group. This was the first major consolidation within China’s booming nonferrous metals industry.
Freshfields Bruckhaus Deringer Beijing partner Chris Wong advised China Minmetals and its subsidiary. Wang Weidong, Grandall Legal Group’s Beijing managing partner, led a team advising China Minmetals on PRC law.
Commerce & Finance Law Offices advised Hunan Nonferrous Metals Holding Group.
Inbound M&A and FDI deals of the year
Co-managing partner Anthony Qiao led a Zhong Lun Law Firm team advising Shanghai Shendi on PRC matters. The team included partners Anthony Zhao, Gavin Zhang, Helen Zhang and Michael Chen.
Paul Weiss Rifkind Wharton & Garrison advised Shanghai Shendi internationally. The firm’s team featured corporate partners Jeanette Chan and Greg Xiaoyu Liu in Beijing and tax partner Jeffrey Samuels, IP partner Charles Googe and litigation partner Allan Arffa, all in New York.
Baker & McKenzie advised Disney.
The Hong Kong-listed, Bermuda-incorporated investment company Tidetime Sun Group bought three coal mines in Xinjiang for HK$7.8 billion (US$1 billion) from Up Energy Investment (China). Tidetime Sun announced in December 2010 that there could be unspecified amendments to the acquisition agreement.
Freshfields Bruckhaus Deringer advised Tidetime Sun in the preparation of the circular for the acquisition and obtaining all related approvals from the Hong Kong stock exchange. The partners involved were Kay Ian Ng and Ken Martin, both in Hong Kong. Partners Xiao Hongming and Xu Ling headed a Guantao Law Firm team advising Tidetime Sun on PRC matters.
Baker & McKenzie advised Up Energy Holding on the sale of its 99.19% interest in Up Energy Investment (China). The legal team was led by partner Lawrence Lee, chairman of the firm’s Hong Kong, China and Vietnam offices.
Daimler was advised by a Taylor Wessing team headed by Munich partner Michael-Florian Ranft, who is also international co-head of the firm’s China practice, and Beijing special counsel Johnny Zhao.
For Beiqi Foton, Beijing partner H John Kao and associate Jessie Chenghui Tang of Jones Day were the lead lawyers on the transaction.
Seoul-based Lotte Shopping spent 730 billion won (US$628 million) in December 2009 to buy a stake in the Hong Kong-listed, Chinese-owned supermarket chain Times so it could expand its business in Hong Kong and the PRC.
It was the largest acquisition to date of a Chinese company by a Korean competitor and the deal also marked the first M&A anti-monopoly approval obtained by a Korean company from the Chinese government.
Hong Kong partner Julianne Doe (then of Hammonds but now with the SNR Denton affiliate Brandt Chan & Co) represented Lotte internationally. Shin & Kim served as Korean counsel with a team led by Seoul partner Beom Su Kim and Beijing managing partner Yong Won Choi, while Janet Xu Rongrong of the Jun He Law Offices served as PRC counsel to the company.
Chen & Co, headed by Lin Zhong, served as PRC counsel to the Zhejiang, Jiangsu-based Times but also worked on behalf of both parties to submit an anti-monopoly review application and respond to questions from MOFCOM. Norton Rose, led by partners Jon Perry and Julian Chung, advised Times on Hong Kong law. Denise Wong of Walkers in Hong Kong advised Times on Cayman Islands law.
Herbert Smith acted for Nomura Holdings, which was financial adviser to Lotte Shopping. Ashley Alder, partner and head of the Asia practice, led the firm’s Hong Kong team.
When Texas Instruments, a US-based manufacturer of semiconductor and signal processing technologies, acquired a semiconductor chip plant in Chengdu, Sichuan, managed by the Chinese-owned Semiconductor Manufacturing International Corporation (SMIC) for about US$175 million, it represented an unusual case of a chip foundry being bought by one of its own major customers.
Texas Instruments sought a manufacturing facility closer to a growing customer base in China and also sought to enter the Chengdu High-Tech Zone, considered by many observers to be a future Silicon Valley with global appeal. Hogan Lovells, led by Beijing corporate partner Thomas Man, advised Texas Instruments.
Wu Wen, a partner at Chengdu-based Tahota Law Firm, led a team advising Cension, the plant’s owner.
Discovery Holdings, South Africa’s largest private health insurer, paid US$28 million for a 20% stake in Ping An Health Insurance, the health insurance subsidiary of China’s second-largest insurer, Ping An Group. This transaction is believed to be the second in which a foreign insurer has acquired shares in a Chinese health insurance company as an institutional investor.
DLA Piper advised Ping An with a team led by partners Mabel Lui in Hong Kong and Kit Kwok in Shanghai. The Allen & Overy team advising Discovery was led by corporate partners Richard Kim in Shanghai and Mark Roppel in Hong Kong.
Swiss human resource services company Adecco established a joint venture in Shanghai with Beijing Foreign Enterprise Human Resources Service Co (Fesco). Fesco Adecco provides clients with staffing and outsourcing services such as payroll and benefits administration.
V&T Law Firm partners Xu Meng, Chen Kai and Dong Yue, and associate Wu Qing, advised Fesco. Linklaters advised Adecco.
CMS China advised Diener Syz private equity fund on establishing a joint venture for low carbon and sustainable construction projects. Liaoning Energy Group, one of China’s biggest companies in the energy sector, is the Chinese partner in the JV.
This deal reflects the interest of foreign investors in the ever-growing clean energy sector in China. CMS’s team consisted of partner Jonathan Selvadoray, senior associate George Ji and associate Vera Jin.
The Royal Bank of Scotland (RBS) and Guolian Securities, which is headquartered in Wuxi, received approval from the China Securities Regulatory Commission in November for their joint venture securities company. Haiwen & Partners acted as acted as RBS’s PRC legal counsel in the deal.
RBS will have a 33.3% stake in the soon-to-be-established joint venture company, which will be called Huaying Securities. The remaining 66.7% will be owned by Guolian. The company will be able to engage in investment banking activities such as secondary offerings, debt financing, underwriting and IPO-related business.
Private equity & venture capital deals of the year
The China-ASEAN Investment Cooperation Fund is an investment fund targeting small and medium-sized business in Southeast Asia and China. The fund will focus on the infrastructure, energy and natural resources sectors.
The Export-Import Bank of China (China Eximbank) will manage the fund, which has been capitalized with US$1 billion but plans to raise up to US$10 billion. Zhang Yi, the Hong Kong head of O’Melveny & Myers, represented China Eximbank.
Denise Wong and Arwel Lewis, partners with Walkers in Hong Kong, advised China Eximbank on Cayman Islands law.
Grandall Legal Group advised Shian Environmental Protection Investment, Tianjin Haitai Group and Beijing Yiqing Saiwo Power Environmental Technology on their joint establishment of Tianjin Shian Haitai Venture Capital Fund, a renminbi-denominated fund.
The fund, in the form of a foreign-invested partnership, is the first venture capital investing in the field of new energy in Tianjin Binhai New Area.
An aerospace industry fund was established by Aerospace Investment Holding Company together with other companies including CITIC Group and Aerospace Industry Investment Fund Management Company. Its aim is to promote the commercial development of satellites and carrier rockets, and the operation and use of satellites. The fund is a closed-ended limited partnership RMB investment fund.
Guantao Law Firm was legal adviser to Aerospace Investment Holding Company. Individuals involved included partner Hao Jingmei and lawyers Chen Zhongye and Feng Kun. During the establishment of the fund, the Guantao team found solutions to issues such as whether a state-owned holding company could act as a general partner in a partnership. The firm also designed an innovative compensation and incentive scheme for the fund managers.
Environment & natural resources deals of the year
China Hydroelectric, established in 2006, owns 11 hydroelectric power plants and plans to acquire other, smaller hydroelectric assets to become China’s largest producer of small-scale hydroelectricity.
DLA Piper acted as US counsel to the issuer, China Hydroelectic. The DLA Piper team was led by New York partner Jonathan Klein and Hong Kong capital markets partner Gene Buttrill. It included lawyers George Yu in New York and Gu Meixia in Hong Kong. “The success of China Hydroelectric’s IPO demonstrates that China is developing a power market which has great potential. From 2010, there will be large-scale investment in renewable energy and clean technology,” said Buttrill.
Xinjiang Goldwind Science and Technology listed on the main board of the Hong Kong stock exchange on 8 October 2010. This was the first such listing for an A-listed company on the SME board of the Shenzhen Stock Exchange
Goldwind was established in 1998 and is one of the world’s largest manufacturers of wind power generation units. Its main markets are Asia, Australia, Europe and America. In 2009 it ranked among the world’s top five wind power generation companies.
DLA Piper advised Goldwind on Hong Kong and US law. Esther Leung, DLA partner and co-head of Asian capital markets, and partners Liu Wei and Gene Buttrill, jointly led the transaction.
China Suntien Green Energy listed on the Hong Kong Stock Exchange with a global offering of more than one billion H-shares. Suntien is one of the leading clean energy companies in north China. Its main business is wind power generation and the transportation and sale of natural gas.
Wang Weidong led the team at Grandall Legal Group’s Beijing office which acted as PRC legal advisers to the lead underwriters, Macquarie Capital and Morgan Stanley Asia.
Clifford Chance acted as international legal counsel to the underwriters. Suntien engaged Jiayuan Law Firm and Latham & Watkins as its PRC and international counsel, respectively.
Daqo New Energy Corporation’s initial public offering of American depositary shares took place on the New York Stock Exchange on 7 October 2010. Daqo is a Chinese producer of polysilicon, which is used in the manufacture of silicon ingot, silicon wafers, batteries and other components of solar power products.
Skadden Arps Slate Meagher & Flom advised Daqo on its US offering while Jun He Law Offices provided PRC legal advice. Morgan Stanley was represented by Simpson Thacher & Bartlett in the US and Haiwen & Partners in the PRC.
On 30 September 2010, Sound Global listed on the Hong Kong stock exchange. Sound Global is the only water treatment company in China in which the International Finance Corporation (the investment arm of the World Bank) has invested. It is also the first mainland Chinese water treatment company to list in Hong Kong. The company is one of China’s leading providers of water and waste water treatment solutions. It also designs and constructs water and waste water treatment facilities, operates and maintains those facilities, and manufactures water and waste water treatment equipment. Its current projects include constructing or operating waste water treatment plants in Xi’an, Hainan province, Jingzhou, Guangxi province and Saudi Arabia.
A team from Zhong Lun Law Firm, led by partner Yang Yuhong and including lawyers Fan Wei and Jin Jing acted as PRC legal advisers to the sponsor, Morgan Stanley. Morgan Stanley was also advised by Herbert Smith.
Dispute resolution deals of the year
Beginning in mid-October 2008, tyre manufacturer Triangle Group (the respondent) refused to abide by a long-term rubber supply contract it had concluded with Shidong Rubber Company (the claimant). Triangle Group argued that the sharp fall in the international price of rubber, which occurred in the second half of 2008 due to the global financial crisis, allowed it to terminate the contract. The case was heard by the China International Economic and Trade Arbitration Commission (CIETAC).
Article 26 of the Several Issues Concerning the Application of the PRC Contract Law Explanation (2), issued by the Supreme People’s Court in 2009, confirmed for the first time the change in circumstances principle. However, in the subsequent Several Issues Concerning the Hearing of Civil Contract Disputes Under Current Circumstances Guiding Opinions, the Supreme People’s Court directed that courts should apply the change in circumstances principle cautiously.
Many commercial disputes have arisen since the international financial crisis hit. Many parties have attempted to use the change in circumstances principle to amend or terminate contracts. How to apply the change in circumstances principle is considered a current and difficult issue in legal circles. The arbitrator in the case held that the drop in prices caused by the financial crisis should be viewed as commercial risk, and did not constitute a change in circumstances. This ruling will have a significant impact on the handling of similar cases.
Jin Yulai, Rao Yi and Teng Gang from Shanghai Kai-Rong Law Firm represented the claimant in the application.
During repairs carried out at Shanghai Pudong International Airport, Xiamen Taigu Aircraft Engineering Company caused serious damage to an aircraft belonging to Cargolux, a Luxembourg-based cargo airline. The cost of the resulting repairs was covered by eight insurance companies including Allianz.
Jin Yulai, Rao Yi, Wang Songping and other lawyers from Shanghai Kai-Rong Law Firm represented the eight insurance companies (the claimants) in a damages suit against Xiamen Taigu before the Shanghai Higher People’s Court. After a first hearing before that court, and a further, final hearing before the Supreme People’s Court, the claimants won the case. Chen Hong of Shanghai Hong’s Law Firm also acted for Allianz.
The case touched upon many contentious issues. The most significant of these concerned the interpretation of article 8.1 of the International Air Cargo Association’s standard ground service agreement, and whether Xiamen Taigu’s actions constituted “a reckless act which could knowingly cause harm”.
The judgment in this case has reference value in the handling of similar domestic aviation cases, and also to some extent reflects the practice of the Chinese courts, giving weight to domestic law and practice but also adhering to international practice.
Zhong Lun Law Firm represented an offshore Mauritian company, GL Asia Mauritius II Limited, which won a dispute over an offshore guarantee in a retrial in the Supreme People’s Court. GL Asia was managed by a well-known US hedge fund management company, which is one of the largest investors in non-performing assets in China.
The crux of the dispute was whether the foreign-related guarantee contract in dispute was valid when GL Asia (the claimant) was acquiring non-performing assets from the defendant. Another issue was how a foreign creditor holding non-performing assets should register a foreign currency guarantee.
The claimant lost badly on appeal. For the second appeal, the company engaged Zhong Lun Law Firm and won in the Supreme People’s Court. The claimant successfully enforced the judgment and recovered the entire sum awarded by the court. Zhong Lun believes that the judgment in this case will play a guiding role in transactions involving cross-border non-performing assets. Interestingly, shortly after the conclusion of this case, the State Administration of Foreign Exchange published the Issues Relating to the Management of External Guarantees by Overseas Bodies Notice, which significantly altered China’s legal approach to external guarantees.
A team comprising Zhang Decai, a partner in Zhong Lun’s dispute resolution department; responsible partner Liu Yuming; and lawyers Xia Huimin and Li Zhanbo advised the claimant.
Zhong Lun Law Firm advised a Hong Kong holding company (the claimant) in an arbitration case before the American Arbitration Association. According to Zhong Lun, the claimant won compensation of US$2.5 million. The defendant in the case was a Fortune 500 company headquartered in the US.
The Zhong Lun team was led by Beijing partner Huo Wei, with lawyers including Sheng Haiwen and Duan Xiuli. The case went from negotiation to arbitration to a solution, and then back to negotiation. The Zhong Lun team also tried alternative dispute resolution theory and methods throughout the case.
The team handled the entire process without the assistance of US lawyers. In the past year, the same team has handled cases before international arbitration bodies including the Geneva Chamber of Commerce and the Dubai International Arbitration Centre.
Orrick Herrington & Sutcliffe offered preliminary advice to Zhong Lun’s client.
The counterparty was advised by its own legal department, with assistance from US firm Haynes & Boone.
Beijing Number 2 Intermediate People’s Court ruled in April 2010 on an unusual tort case that alleged an infringement of the “consumer’s right to know” brought by Shi Xia against Johnson & Johnson (China). This judgment upheld the lower court’s judgment which rejected all the claimant’s claims.
Run Ming Law Office represented Johnson & Johnson (the defendant) in both the lower court and the appellate court. Run Ming founder Wang Yadong and partners Gao Song and Qin Wen represented Johnson & Johnson. The case attracted unusually wide media coverage, with Beijing Court Network and CCTV Online providing live broadcasts of the first proceedings before Dongcheng District People’s Court.
The case can be traced back to the inquires raised by the Campaign For Safe Cosmetics of the US in 2009 about the safety of baby skin care products manufactured by Johnson & Johnson. Chinese authorities found formaldehyde and dioxane levels met requirements, contrary to the claimant’s claims.