12 posts categorized "China's Capital Market" Feed

Recent Changes in China's Capital Market

China's central government relaxes its control over Chinese companies outbund investment in overseas asset by introducing a filing-based system vs. approval-based system. Compared with the old system, which requires approval from the National Development and Reform Commission (NDRC), the Ministry of Commerce (MOFCOM) and the State Administration of Foreign Exchange (SAFE) for any investment above $100mm, under the new policy, a Chinese company only needs to file with NDRC if the transaction is below $1 billion or NDRC's local representation if below $300mm. However, SAFE and its currency control still remains a major hurdle for outbound investment. For more detail, please visit Schulte Roth & Zabel's report on this subject. China is going to launch the Third Board in August 2014. The Third Board is similar to the bulletin board in the U.S. Unlike other main boards in China, which accept a limited number of companies each year, the Third Board will accept up to 1000 companies per year, in a hope to help more small enterprises to raise capital. However, the new board has a high bar of RMB 5 million net worth (approximately $800K) for retail investors. The board will include 100 Chinese market makers to create liquidity,... Read more →

Six Foreign Hedge Funds Approved to Raise RMB in China as QDLP

TweetFollow @keeglobal Oaktree Capital Management, Och-Ziff Capital Management Group, Winton Capital Management Group, Winton Capital Management, Man Group PLC, Citadel and Canyon Partners are the first group of foreign hedge funds which received Chinese government's approval to operate in China as qualified Domestic Limited Partner (QDLP). They are allowed to raise RMB from China and invest overseas. Initially, each fund is permitted to raise $50mm. The total quota for QDLP will increase to $5 billion, eventually. Similar to QDII, QDLP is set up to improve the convertibility of RMB. It is the first time Chinese government warms up to hedge funds. People speculate that QDLP funds will be registered in the Shanghai Free Trade Zone, which is believed to allow more freedom for foreign investors. Read more →

While institutional investors were still recovering from the shocks of some accounting scandals involving Chinese companies listed on U.S. exchanges through reverse merger, Caterpillar’s $580 million write-down due to fraudulent accounting practices of its Chinese subsidiary cast yet another chill on future transactions U.S. companies and/or investors are considering. In the reverse merger examples or Caterpillar’s fumbled acquisition, the ultimate problem lies in the lack of quality due diligence. Standard due diligence, including validation of documents, materials and interviews of the management team, has proven far from sufficient in a market like China’s. The biggest challenges come from prevailing business and transaction practices in China, which are dramatically different from those in the United States. We would like to point out the fundamental differences in these practices so that investors may understand not only the problems, but also the causes behind them. Cash Business One of the most common practices by Chinese companies is the conducting of their business in cash without providing VAT Fa Piao (which means official receipt used by Chinese tax authorities to calculate and collect VAT taxes) to purchasers of goods or services. There are three primary taxes a Chinese company pays to tax authorities, Corporate... Read more →

Fortress Investment Group Moving Into Chinese Bad Debts through D.B. Zwirn

According to Financial Times report on January 8, Fortress Investment Group is buying an asset management firm specialized in soured debts and distressed assets in China. The firm's name is the Fan Ya Tai Asset Management (International) Ltd. Fan Ya Tai's English website indicates that, "Fan Ya Tai Asset Management Company (International) Limited ("FYT"), is a PRC based commercial mortgage, commercial finance and residential mortgage special service consulting company. Majority shareholders are D.B.Zwirn funds managed by Fortress Investment Group(NYSE:FIG)." Its Chinese website says that the transfer of majority shares to D.B. Zwirn completed in December 2007. Starting from 2006, D.B. Zwirn's problems were disclosed, and in 2007 D.B. Zwirn was undergoing extensive investigations and audit. What is difficult to understand, why did Fan Ya Tai still went ahead and let D.B. Zwirn take the company over. When Dan Zwirn started winding down his fund due to poor internal control in 2008 he transferred $2.8 billion of illiquid assets to an affiliate of Fortress Investment Group (FIG). In this case, can we interpret that part of the overseas assets such as those of Fan Ya Tai were also folded under FIG. If this is the case, FIG is only officially claiming... Read more →

SAFE Relaxes Foreign Exchange Control to Encourage Chinese Private Companies Invest Overseas

To address the challenges faced by private companies to finance overseas investment and to simplify the foreign exchange control policies for outbound investment activities by private companies, SAFE released new rules " the Circular of State Administration of Foreign Exchange on Foreign Exchange Administration in Relation to Encouraging and Guiding the Healthy Development of Private Investment" (Hui Fa [2012] No.33) (the “Circular”) on 11 June 2012. The Circular simplifies the regulation processes for the remittance of foreign direct investment capital as well as offshore loans granted by domestic enterprises and relaxes the administration of external guarantee provided by Chinese individuals. The Circular's main content includes: Simplifying the management of outbound direct investment capital remittance. The balance between the total investment amount of the outbound direct investment by a Chinese enterprise and that of the pre-registered overseas investment capital with the government can be remitted back to China after registering the remittance with SAFE. Previously, domestic enterprises needed to register and report the amount of realized investment overseas and deduct the total pre-registered investment capital before they could remit the balance back to China. Simplifying the administration of offshore loans. The Circular allows domestic companies to use foreign currency loans borrowed... Read more →