Acquisition finance and investment

OVERVIEW

US$1,500,000.00 +

Our client, a Hong Kong company, has initiated negotiations to invest in a plant in another Asian jurisdiction by applying for shares representing a minority holding in the plant-owner company. Our client is seeking advice on the funding of the investment as well as the investment itself.

For the funding of the investment, our client has secured the agreement of a small number of investors but terms need to be agreed taking in consideration the absence of income to be generated by the investment for the first 3-5 years.

For the negotiations themselves, we anticipate to review the terms of the investment agreement and shareholders agreement to be drafted by the lawyer for the plant-owner company.

 

CHALLENGE

The case is cross-border in more than one respect:

  • only one of the individual investors is a Hong Kong resident; thus, consideration should be given to relevant provisions of their place of residence and whether these jurisdictions have entered into a tax treaty agreement with Hong Kong (for capital gains and interests in particular);
  • the legal documentation for the investment in the plant-owner company will be subject to the law of the place of incorporation of the company; which is the logical solution considering our client’s investment is for minority interest.

 

ACTIONS

Prior to drafting any document, we prepared a straightforward skeleton memorandum (bullet points and tables) to address the following questions and receive feedback from our client:

  • selection of appropriate funding agreement between the investors and the Hong Kong company;
  • securities available;
  • taxation in Hong Kong; warning for non-Hong Kong resident investors that care should be given to the relevant provisions of the tax treaty between their place of residence and Hong Kong (if any) and seek local advice;
  • outline of provisions to be included in the funding agreement or a separate document in order to protect the investors (creditors of the Hong Kong company).

For the negotiation of the legal documentation for the investment itself, it was agreed to enter first into a letter of intent (LOI) in order to have a roadmap for the negotiations in terms of rights for our client as an investor – minority shareholder of the plant-owner company (representations and warranties to be found in the investment agreement; key provisions of the shareholders agreement) and schedule.

 

OUTCOME

The efforts made in advance to structure the discussions regarding the funding as well as the investment itself, paid in the sense that discussions could focus on the drafting and compliance with local rules (for the legal documentation for the investment).