FAQ on Potential Pitfalls for Foreign Insurers on Exiting Asian Joint Ventures
Q1: Why is it advisable that the foreign insurers should consider the exit strategies when they made the investment in Asian?
A: The reasons are mainly as below:
(a) different cultural and diverging commercial management may arise between the joint venture partners;
(b) the restrictions and limits to exit stipulated by local laws and regulations;
(c) ambiguity in imperfectly drafted joint venture agreements.
Q2: What are the mainly restrictions and limits for foreign insurers to exit the investment?
A: First many Asian countries have restrictions on the amount of equity which a foreign entity may hold and the restrictions on the foreign investors reduce its equity stake in the joint venture by selling them to potential purchasers; Second, many countries in Asia, there are Limits on the number of insurance businesses an insurer can promote, that’s to say it is impossible for an existing insurer which is active in one sector of the insurance market to simply acquire an outgoing shareholder’s stake in a joint venture which is involved in the same sector; In additionally, there are restrictions on the maximum price an outgoing foreign shareholder can achieve for its shares in the joint venture and the transfer of shares of a foreign insurer are required to get approval from the insurer regulator.
Q3: What should the foreign investors consider for exiting when negotiate the joint venture agreement?
A: According to the statistic data the most common distributes arose in the joint venture agreement for foreign investors’ exiting mainly lies in confidential and transfer clause. So, it is advisable that when negotiating the joint venture agreement, foreign investors should seek to ensure that one exception permits the provision of information relating to the joint venture company to a bona fide potential third party purchaser of its stake, subject to such third party entering into appropriate confidentiality undertakings of its own. In addition, in the transfer clause the foreign investors should seek the agreement on the terms of a deal with a third party, the outgoing shareholder will be obliged to offer round its shares to the existing joint venture partners, who will have a right to buy the outgoing shareholder’s shares at the price agreed with the third party. Should the remaining joint venture partners elect to take up the offer, then they will be able to do so. If they decide not to, then the outgoing shareholder will be free to sell its shares to the third party on the agreed terms.