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Shorter wait: China's M&A watchdog halves time taken to approve deals
October 20, 2014 / 9:13 PM / 3 years ago

Shorter wait: China's M&A watchdog halves time taken to approve deals

HONG KONG (Reuters) - China's M&A watchdog is getting much faster at approving both domestic and foreign deals, cutting legal costs for companies and marking a shift in the outlook of a regulator that has been a thorn in the side of bankers since its creation.

While the Ministry of Commerce's anti-monopoly bureau has blocked only two deals since its inception in 2008, the entity known as MOFCOM has attracted international criticism from merger and acquisition lawyers and bankers.

MOFCOM has been slammed for being slow to clear even small-sized deals and for imposing conditions, such as business divestments, on foreign-to-foreign mergers that barely touch the China market and which have been unconditionally cleared by the United States and Europe.

But the introduction of a new procedure in April for what MOFCOM describes as "simple cases" has nearly halved the length of time it takes to win clearance. Lawyers say the move is part of a broader strategy to increase efficiency at the resource-strapped regulator and to help improve its professional image.

This month, MOFCOM also published its most comprehensive data set yet tracking both transaction filing and approval dates. Lawyers say it is a milestone for the agency, which has become notorious for its opacity.

"Our experience, and we are hearing from others, is that MOFCOM are getting much better at transparency and at getting on with it," said Mark Jephcott, head of the Asia antitrust practice at Herbert Smith Freehills in Hong Kong. "We did a deal recently from start to finish in three months – that was phenomenal, and would not have been possible a year ago."

MOFCOM is making it easier for companies to plan and execute acquisitions, and that is reducing legal costs by up to 40 percent to about $80,000 on average for simple cases, lawyers say.

The regulator took an average of 26 calendar days to approve deals that were filed under the new simple case procedure, according to law firm Norton Rose Fulbright's analysis of the transaction data.

The data covers 20 transactions filed and cleared between May and the end of September. The fastest clearance – Rolls-Royce Holdings' (RR.L) move to take full control of its joint venture Rolls Royce Power Systems – was approved in just 19 days.

A pre-acceptance period of around four to eight weeks during which lawyers work with MOFCOM to prepare the filing is not captured by this data.

All told, however, lawyers say acquisitions that previously took five to eight months to clear can now be passed in between three and five months using the simple process.

"This is on par with a simple case in the EU," said Marc Waha, partner in the antitrust practice at Norton Rose Fulbright in Hong Kong. He estimates that around half of all deals are now filed under the simplified procedure.

To be sure, MOFCOM still has a long way to go. Some law firms are reluctant to use the new procedure because the bases on which a deal could qualify as "simple" are not yet 100 percent clear.

And the blockbuster international deals that China believes could threaten its industrial policy goals remain shrouded in uncertainty, as evidenced by its decision to block a planned alliance of the world's top three container shipping lines in June.

MOFCOM did not respond to faxed and emailed requests for comments.

Speaking at a press briefing in February, Shang Ming, the bureau's director-general, said MOFCOM was introducing the simple procedure to "improve efficiency" at the agency. After five years, MOFCOM has learnt that the vast majority of cases do not harm domestic competition, he added.

"There has been a change in philosophy at MOFCOM," said Liyong Jiang, a partner at Beijing-based Gaopeng & Partners and a former MOFCOM official. He and others said the agency has worked hard to improve its sector knowledge and has more confidence to identify and approve simple cases.

The simple case procedure is expected to speed up complex transactions, since MOFCOM will have more time to devote to these deals. Lawyers also believe MOFCOM is trying to encourage parties which in the past have taken a risk not to seek clearance, to comply with the law.

"A simpler and less costly process should make the whole prospect less daunting for those parties that were hesitating to seek clearance in the past," said Waha at Norton Rose Fulbright.

The change also reflects the Chinese government's growing embarrassment over international criticism of the agency. One Beijing-based antitrust lawyer, who has helped train up MOFCOM officials, said they are sensitive to bad press: "They know they have delayed deals around the world and they're frustrated."

Reporting By Ryan Woo

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