China Corporate Renewal Update
Vol. 1, No.1 - March 15, 2002
TOPICS THIS ISSUE:
- RMB 10.8 Billion In China's First International Bidding for Non-performing Assets
- First Non-performing Assets Management Sino-Foreign Joint Venture
- Foreign Investors Allowed into the Restructuring of Chinese SOEs
- Possible Turnaround Projects
- Large-scale diesel engine factory
- Lithium battery factory in Beijing
- Transportation corporation
- Pharmaceutical manufacturer in Beijing
- Transportation and storage company
- Office complex in second phase of construction
- Media joint venture in Tianjin
- Pharmaceutical Manufacturing Facility in Northern China
RMB 10.8 Billion In China's First International Bidding for Non-performing Assets
On December 12, 2001, China Huarong Asset Management Co., one of the four largest state-owned asset management corporations in China, agreed to sell a non-performing asset package worth approximately RMB 10.8 billion to a bidding group led by Morgan Stanley. By entering into a Joint Venture (JV) with Huarong Co., Morgan Stanley and bidding members obtained the rights to co-manage the state-owned assets, which accounts for more than 20% of all assets currently managed by Huarong Co.
The Morgan Stanley bidding group, made up of Lehman Brothers, Solomon and several other investment institutions, was the strongest of the three groups that attended the bidding. Through leverage buyout and cooperative management, they were able to purchase four asset packages out of a total of five, consisting of 254 debtor enterprises in 18 provinces in China.
First Non-performing Assets Management Sino-Foreign Joint Venture
With the establishment in early 2002 of the first Sino-foreign joint venture for the management of non-performing loans in China, another breakthrough was achieved in China's strict regulations concerning foreign party involvement in the management of China's debt ridden State Owned Enterprises (SOEs).
Goldman Sachs will contribute a cash investment, while Xinda Asset Management Co., one of the four largest state-owned asset management corporations in China, will employ non-cash assets in the purchase. Applications for approval from government administrations are ongoing, and the newly formed JV will begin operations soon after obtaining its business license. "Through cooperation with experienced transnational groups," said the leader of Xinda Company, "both the Chinese government and its enterprises are actively seeking an effective way for dealing with their numerous non-performing assets."
Foreign Investors Allowed into the Restructuring of Chinese SOEs
According to a statement in a recent press conference by Zeng Peiyan, Director of the State Planning Commission, in a bid to attract more foreign investment, China will engage in new asset restructuring trials in 2002. By combining venture capital operations, investment funds and other advanced and popular money-raising methods, China is hoping to improve its rapidly growing financial system.
Mr. Zeng remarked that 2002 is the first year that foreign investors and foreign multinational groups are permitted to participate in the restructuring of SOEs as well as in the acquisition and management of state-owned non-performing assets.
Possible Turnaround Projects
Large-scale diesel engine factory
Items | Details |
Financial condition | - Total assets: RMB 132,310,000
- Total liabilities: RMB 305,300,000
- Owner's equity: RMB -172,980,000
- Sales profit: 0
- Gross profit: RMB -201,980,000
- Net profit: 0
|
Staff number | - Total: 1359
- Currently working: 1130
- Retired: 229
|
Trade classification | |
Current situation | - Production stopped since July 1999;
- Highest turnover in history was RMB 110,000,000;
- Secured approval for corporate restructuring from the State Council in April 2001.
|
Requirements for the acquirer | The acquirer should be an independent legal person registered in China. |
Remarks | Preferential treatment from local government: - No land tax will be levied within first five years of takeover, following five years' land tax can also be relieved for high-tech and foreign-currency-earning enterprises;
- 50% value added tax can be returned within first five years from takeover for all high-tech companies and all enterprises newly-established by a domestically publicly listed company;
- 50% local revenue value added tax can be returned for enterprises with a registered capital exceeding RMB 20 million;
- Seven types of local taxes can be exempted for a newly-established enterprise.
|
Lithium battery factory in Beijing
Items | Details |
Classification | Light industry |
Main products | Vacuum pumps, electronic balances, electric stoves, vacuum driers, electric welding machines |
Operation status | Production stopped in 1996 after several months' preproduction. Equipment has been well maintained. |
Transfer modes preferred | - Leverage buyout (100% equity available)
- Contracted management
- Equipment transfer
|
Staff number | |
Production facilities | - Water from local water plant
- Electricity: 70KV
|
Land covered | - Totally state-owned land
- Floor space: 1.5 hectares
- Building area: 0.3 hectares
|
Transportation corporation
Items | Details |
Background information | - Founded in 1980
- Licensed operator in the storage and transportation industry
- Staff number: 150
- Floor space: 12,000 square meters
- Building area: 9,650 square meters
|
Financial condition(by August 2001) | - Registered capital: RMB 4,050,000
- Total assets: RMB 7,120,000
- Current assets: RMB 1,020,000
- Fixed assets: RMB 6,100,000
- Total liabilities: RMB 3,050,000
- Current liabilities: RMB 2,650,000
- Long-term liabilities: RMB 400,000
- Owner's equity: RMB 4,070,000
- Currently holding no loans from any financing institution
|
Trade classification | Transportation |
Pharmaceutical manufacturer in Beijing
Items | Details |
Background information | - Founded in July 1995 in Beijing
- Licensed operator in pharmaceutical industry since September 1996
- Staff number: 150
- Floor space: 6,000 square meters
- Building area: 3,200 square meters
|
Main products | - Mainly in two categories: capsules and granule medicines;
- One of their products, "Shengu Capsule", is the only herbal calcium medicine included by Beijing's healthcare insurance system and has been approved as a Nationally Protected Traditional Medicine;
- Since the "Shengu Capsule" came on the market in 1997, turnover has increased 20% annually with a 80% market share;
- 1999 turnover in Beijing amounted to RMB 16,000,000.
|
Transfer mode preferred | - 35% equity can be transferred.
|
Transportation and storage company
Items | Details |
Year founded | 1992 |
Registered capital | RMB 30,000,000 |
Staff number | 20 |
Floor space | 400 square meters |
Building area | 520 square meters |
Business scope | Transportation agency, river and ocean transport, ship lease and repair, storage. |
Transfer mode preferred | Share purchase |
Office complex in second phase of construction
Items | Details |
Background information | - Location: Chongwen District, Beijing
- Floor space: 2,600 square meters
- Gross building area: 18,000 square meters
- Aboveground: 13,000 square meters
- Underground: 5,000 square meters
- Main purpose of the construction: office building and underground parking lots
|
Project introduction | - Close to Beijing's largest shopping center, the building is located in one of the city's largest central areas and is surrounded by numerous hotels and office buildings;
- The first phase project, over 28,000 square meters of office buildings, has been finished and one subway station is under construction within the building, which will be completed in 2005;
- Land requisition and removal of original residences is completed.
|
Transfer mode preferred | - Further discussion is needed for final cooperation mode;
- Sponsor is responsible for providing the land and necessary facilities, while potential investor is to become source of funds required;
- The two parties will cooperate on the construction and the following management operations;
- 40-60% of shares can be obtained by investor. Further discussion is needed for final plan.
|
Media joint venture in Tianjin
Items | Details |
Capital composition | 40%-60% joint venture between Chinese party and NewsCorp. |
Staff number | approximately 30 |
Registered capital | Approximately US$ 22,000,000 |
Business scope | Event management, advertising, TV advertising production, etc. |
Current operation situation | Break Even |
Transfer mode preferred | Purchase of foreign party's shares (possible purchase of local party's shares) |
Pharmaceutical Manufacturing Facility in Northern China
Items | Details |
Capital composition | 50/50 joint venture between Chinese party and multinational pharmaceutical corporation |
Total investment | US$12 million |
Business scope | Manufacture pharmaceuticals and other health sciences products |
Current operation situation | US$2 million profit per year |
Transfer mode preferred | Purchase of foreign party's shares (possible purchase of local party's shares) |
If you are interested in any of these potential projects, please contact the following individuals for more information:
Beijing | Shanghai |
Richard Wageman Lehman, Lee & Xu
China Lawyers, Patent & Trademark Agents 6th floor, Dongwai Diplomatic Office Building
23 Dongzhimenwai Dajie
Beijing 100600 China
Tel.: (86)(10) 8532-1919
Fax: (86)(10) 8532-1999
Email:rwageman@lehmanlaw.com | Blaine Turnacliff Lehman, Lee & Xu
China Lawyers, Patent & Trademark Agents Suite 5107, Plaza 66
No. 1266, West Nanjing Road
Shanghai 200040 China
Tel: (86)(21) 6375-8240
Fax:(86)(21) 6375-8705
Email: bturnacliff@lehmalaw.com |
Lehman Lee & Xu
China Lawyers, Notaries, Patent, Copyright and Trademark Agents
http://www.chinalaw.cc/
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