Variable Interest Entity

By  Zeng Xianwu Bai Lihui King & Wood’s Foreign Direct Investment (FDI) Group

To achieve the initial public offering ("IPO"), there are two options for Chinese companies, onshore listing (also known as A-share listing) and offshore listing (also known as red-chip listing).  Since the conditions and qualifications for A-share listing are usually a little higher and the procedure is more time-consuming than for the offshore listing, Chinese companies which cannot meet the A-share listing’s requirements or which need to complete IPO rapidly, usually would prefer the red-chip listing.  For the red-chip listing, there are two commonly-used structures for Chinese companies: the straight-forward offshore listing structure and the VIE structure.  In addition, for the purpose of attracting foreign investors and for circumventing restrictions on foreign direct investment, during the Pre-IPO restructuring, the VIE structure is also widely used by Chinese companies and foreign companies alike.

In 2011, after a series of public events, the variable interest entity ("VIE") structure re-attracted a lot of attention and concerns from the PRC authorities, entrepreneurs, investors and other market participants.  This essay will describe the circumstances in which the VIE structure was created, how it has been used and the changes in the regulatory environment which might affect the feasibility of utilizing the VIE structure.


Continue Reading Variable Interest Entity Structure in China

作者:徐萍 金杜律师事务所外商投资

长期以来,可变利益实体结构(即Variable Interest Entity,“VIE”结构)一直是外国投资者进入中国外商投资限制领域的常用模式。与此同时,VIE结构一直以来也是中国境内企业在境外资本市场实现上市的常用做法。

第一个通过VIE结构上市的著名案例便是新浪,其于2000在美国纳斯达克成功上市。实际上,VIE结构的另一种常用的说法就是“新浪模式”。新浪使用VIE结构成功绕开了中国电信增值产业对于外商投资的限制。从那以后,无论是外国投资者还是国内投资者在中国很多限制或禁止外商投资的领域开始复制使用VIE结构。

VIE结构实质上是指一种安排,根据该安排,在中国境内的一家全资或合资外商投资企业(“控股公司”)取得另一家实际运营公司(“运营公司”)的控制权,而该运营公司则持有必要的许可以在限制或禁止外商投资的领域内开展业务。由于这些产业被中国政府规定为限制或禁止外商投资的产业,所以外国投资无法直接向该运营公司进行投资。相应的,外国投资者会在控股公司和运营公司之间采取多种合同安排,以便使该控股公司获得对运营公司的运作和管理的实际控制权。该运营公司的利润也将流回控股公司,并其业绩将最终纳入控股公司。
 


Continue Reading 在中国通过VIE结构进行外商投资将遇到挑战

By Xu Ping  King & Wood’s Foreign Direct Investment Group

The variable interest entity ("VIE") has long been a popular structure for foreign parties to invest in sectors which are restricted by China’s industrial policy to foreign investment. In addition the VIE structure has also been used as a means by which Chinese domestic entities could list offshore on international capital markets.

The first well known VIE structure was that of Sina.com in its 2000 listing on NASDAQ. Indeed the VIE structure is also commonly known as a "Sina Structure". Sina used the VIE as a workaround structure to avoid restrictions on foreign direct investment (FDI) in the value-added telecom services sector. Since then, both foreign and Chinese investors alike have replicated the VIE structure in many other sectors of China’s economy where FDI is either restricted or prohibited to foreign investors.


Continue Reading Variable Interest Entity (VIE) Structure for Foreign Investment in the PRC May Face Challenge