CASE IN POINT

Morrison & Foerster’s China-based lawyers were pioneers in overseas listings by PRC State- owned companies in the Hong Kong and U.S. markets. Starting in the early 1990s, the PRC government granted approvals to the best PRC State-owned companies to list outside China. Our PRC clients, including Shanghai Petrochemical, Jilin Chemical, Angang New Steel and China Shipping, were among the first companies permitted to offer shares to foreign investors in conjunction with listing on the New York Stock Exchange and HK Exchange. In April 2006, we represented Dalian Port (PDA) Company Limited in one of the largest and most successful PRC deals to come to market.

The road to an overseas listing is a long and difficult process for a Chinese company, especially a state-owned company with a multitude of business interests. In the recent listing and $320 million global share offering by Dalian Port, Morrison & Foerster deployed a cross-office team comprised of lawyers from the Hong Kong, Beijing and San Francisco offices. Hong Kong associates Ling Jin and Yurong Ye spent weeks living in Dalian in Northeastern China as they worked through documentation relating to multiple layers of companies within the Dalian Port group and their underlying businesses. Managing partner Ven Tan and partner Xiaohu Ma would fly in periodically to discuss deal issues, while U.S. securities and tax lawyers in Hong Kong and San Francisco reviewed issues arising in connection with the U.S. offering.

Understanding a client’s business is critical to any IPO. Preparing PRC State-owned companies for their IPOs has exposed associates to the largest steel furnaces in the PRC in Anshan, tourism resorts in the Jade Mountains in Yunnan province, super oil tankers and ULCC container ships in Shanghai, textile mills in Zhejiang province, coal mines in Shandong province and the shipping docks in Dalian. In addition to seeing the sights in these remote parts, Morrison & Foerster lawyers spent extended periods discussing the complex restructuring issues that face these companies, including which assets and operations to transfer to the listing company, arranging for continuing support services/facilities retained by the controlling parent companies and working through challenging disclosure issues. The restructuring exercises often involve asset transfers easily exceeding billions of dollars.

Following the successful completion of its restructuring, Dalian Port was ready to submit its IPO listing application to the HK Exchange and launch the offering process. In connection with the offering, Morrison & Foerster lawyers worked with Dalian Port, the bankers and regulators to address legal and business issues, including conflicts of interest issues arising from overlapping management in the listed company and the PRC parent company and related party transactions. Setting up an HK and U.S.-compliant corporate governance structure for PRC State-owned companies often is a challenge unto itself. Morrison & Foerster lawyers were asked to conduct training sessions for company management in order to familiarize themselves with international standards. As one of the lead associates running the deal, Ling Jin notes: “I had to liaise with Dalian’s management on a wide range of issues—both legal and business. This deal really gave me insight into the many logistics involved in executing a global offering and the roles played by the various advisers.”

For the Dalian Port deal, having worked through the concerns of the HK securities regulators, it was time to take the deal on the road to potential investors. The deal took the form of a Hong Kong public offering together with a placement to institutional investors in Hong Kong, Europe and the U.S. in reliance on Rule 144A. The Dalian Port deal was one of the most successful deals to come to the Hong Kong market and attracted an over-subscription of more than 850 times. More than $20 billion in subscription money was submitted by investors for the $320 million worth of shares of Dalian Port.