In China, Foreign Internet Investors Reassess Contracts-WSJ

• Posted by bbishop
• on September 6th, 2011

Related to one of the issues discussed in recent posts Could Regulatory Winter Be Coming For China Internet Investors? and Do Most Chinese Internet Firms Have A Technically Illegal Corporate Structure?, this morning’s Wall Street Journal reports that:

Foreign investors in the Internet sector and other restricted Chinese industries are looking into changing their contracts with local companies, in light of new guidelines for Chinese officials to review mergers and acquisitions…

Additional rules released by the Ministry of Commerce earlier this month indicate that investments made through a widely used format known as a “variable interest entity,” or VIE, structure—which Chinese companies in restricted industries use to obtain foreign investment—may also be subject to review…

Rocky Lee, head of Cadwalader, Wickersham & Taft LLP’s Greater China corporate practice, said his firm is helping clients fix or upgrade their VIE contracts so that, if transactions are voided, investors can expect to recoup at least a portion of their money.

“Just about all of our financial and institutional investors are now carefully examining these issues,” Mr. Lee said, adding that such provisions will likely become standard, in light of the government’s additional national-security-review requirements.

Mr. Ross said his firm advises buyers in merger-and-acquisition transactions not to make any payments until all relevant clearances are obtained, and that he now also asks that companies either seek national-security clearance, or an “assurance that a national-security review is not required.”

Read the entire WSJ article here–Foreign Investors Consider Changes in China Deals – WSJ.com

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