Mine Clearing, Alien investment risks. Law

Foreign investment risks, mine cleaning

 

Legal Cross-border investment risk-Mine Clearing

As mentioned in the previous article, when companies of a country go out of the country to invest in different places, how to mark the “minefield” to win, it depends on whether you can mark the risk and eliminate or prevent it, and then achieve the purpose of investment income. From the perspective of how to control and avoid cross-border investment risks, I will talk about some points that can be referred to.

 

What is the Risk in overseas investment?

Out of market and investment strategy considerations, more and more companies will look to invest and expand overseas. Value and risk are two keywords in international M&A transactions. Both parties in the transaction try to maximize value and avoid risks as much as possible.

Although the risks of overseas investment are everywhere, if you have risk prevention awareness and use professional methods to identify, evaluate and control risks, to a large extent the risks can be reasonably avoided and managed.

 

Whats is the communication & understanding problem while overseas investment?

How do cross-border parties communicate effectively (that is, to do the three communications):

i. Effective communication with the counterparty, such as the seller, the target company or the partner’s board of directors or project team, to fully understand the motivation of the counterparty’s transaction, purpose, main transaction conditions, timetable, etc., in order to make timely and accurate decisions.

ii. To communicate with other stakeholders in the project and intermediary agencies of all parties, such as government agencies, chambers of commerce, labor unions, partners, etc.

This channel can obtain comprehensive information as much as possible; the third is to communicate with the employees and management of the target company in the operation after the completion of the acquisition. Ignoring any of them may be useless or even dangerous.

 

Whats are the preparations that investors make for investing abroad?

Investors make full preparations before going abroad, study the political, economic, cultural, and legal environment of the target country, and obtain a more comprehensive and clear understanding of various investment risks.

Some “regulatory complements. “irregular” “Minefields” can be easily skipped, and many losses can be avoided. Many countries or jurisdictions have unique laws and regulations.

o invest overseas, you must first understand the “rules of the game”, which is not only necessary for the successful completion of the transaction Yes, it is also a compulsory course for operating and developing companies in the local area after the transaction is completed.

For example, South Africa’s famous Black Economic Renaissance Act requires companies to consider the participation of blacks and make ratings in terms of equity, management structure, employee employment, and communities. The investment of Chinese companies in South Africa was frustrated because they did not fully understand the regulations and prepared countermeasures.

In M&A transactions, it is necessary to analyze the complicated target company information and transaction documents to fully understand the project situation, otherwise misunderstanding or decision-making may occur Mistakes.

Therefore, the initial feasibility study and due diligence of the project are very important. From the beginning of the project, the company needs to have a team with rich experience in overseas investment and a legal service agency to analyze the various information of the project in a timely manner.

The decision-making level communicates and provides suggestions so that the decision-making level can make investment decisions with a comprehensive and accurate understanding of the project.

For example, Indian law stipulates that in the three major mining industries (iron ore, scrap iron ore and other non-metallic mining) foreign investment must not exceed 50%. For example, to set up a company in Malaysia, it must be registered with the Corporate Management Commission of Malaysia (CCM).

The company must have at least two directors, the main or only place of residence of the directors is in Malaysia, and the company must There are at least two shareholders as initial investors.

 

In addition to the express provisions of the laws and regulations of the target country, the foreign political environment may have prejudice against Chinese companies, especially the strategic investment behavior of Chinese state-owned enterprises has attracted the attention of many countries. Basically every overseas investment project experienced by Chinese companies will face such problems.

What is the relationship between Chinese companies and the government, and how much risk and uncertainty are the Chinese government’s approval procedures?

For these reasons, in some competitive bidding transactions, even if Chinese buyers offer equal or better trading conditions, they may still be at a disadvantage in the competition. In the face of prejudice and misunderstanding, dissatisfaction and complaints do not help. Instead, proper public relations and communication should be carried out, and laws and contract provisions should be reasonably used to achieve the goals.

 

As an investor how to use strategic deployment to guide your own steps?

Formulating an M&A strategy is the first step in overseas M&A, and it is also a key step in determining success. A large number of corporate M&A failures are due to the unclear or lack of forward-looking strategic goals, and the deviation of the M&A strategy in the implementation process.

Therefore, when making overseas investment decisions, foreign companies first need to formulate a clear internationalization strategy to determine their goals.

Some corporate mergers and acquisitions are to obtain advanced technology and management experience of overseas companies, and some corporate mergers and acquisitions are to expand scale and market share and achieve synergies.

Companies must first determine the goals and implementation methods they will achieve through internationalization strategies based on their own conditions and the global competition pattern.

The question of how to integrate with domestic enterprises after overseas investment or mergers and acquisitions is also a question that must be considered at the stage of mergers and acquisitions.

 

In order to understand and respond to the hidden risks of the target company, a professional organization needs to conduct a comprehensive and detailed due diligence on the target company in terms of law, finance, operation, and environment.

Regardless of the transaction structure adopted, due diligence can be said to be an indispensable procedure for every M&A transaction, just like a doctor’s examination before prescribing a prescription.

If you want to see the target company clearly, you need to pass due diligence to fully understand the assets and ownership, the accuracy of financial accounts, company liabilities, intellectual property rights, environment, etc., and professional professionals can analyze and judge the collected information.

A reasonable assessment of the risks involved, and on this basis, design the transaction structure and transaction conditions or adopt relevant risk avoidance methods and operating modes.

In two cases, a Chinese company hopes to acquire a key technology through the merger and acquisition of a company belonging to a multinational group, but through due diligence, it is found that the ownership of the technology belongs to a special purpose company established by the multinational group in Switzerland. The target company only has a non-exclusive license.

 

Considering main risks in transactions on the basis of due diligence results

On the basis of the results of due diligence, the acquiring party should consider the main risks involved in the transaction with the assistance of professional advisory agencies, design a transaction structure that can realize its long-term international strategy and short-term business objectives, and negotiate transaction conditions with the counter-party, which will ultimately be reflected in M&A transaction documents.

Cross-border mergers and acquisitions are a complex systematic project, and transaction documents are the most important basis for implementing transactions and regulating the rights and obligations of all parties.

Especially in mature markets, transaction documents are usually very complicated, and the acquiring party needs to make decisions on the basis of full understanding with the assistance of legal counsel.

The acquirer must not only pay attention to the purchase price, but also fully understand the provisions of the transaction documents. Package deal conditions and their impact on risk.

If there is no adequate guarantee in terms of trading conditions, the seemingly low price, & may even hide a black hole, such trading undoubtedly lurks huge risks.

 

Furthermore, it is necessary to be prepared for post-merger corporate governance, integration of management and employees, and business integration.

The acquirer usually changes or perfects the corporate governance structure after completing the merger, and forms a management team composed of the original retained personnel, the investors dispatched, and the recruited talents who understand the local culture, the market, and are familiar with the operation of the company for effective management and operate the post-merger enterprise, and integrate with other resources of the acquirer.

Post-merger integration is based on three pillars: organization, process and communication. This requires good communication with local employees to enhance mutual understanding, including understanding of each other’s culture, work style, and personality differences, so that employees have a sense of belonging to the corporate culture.

At the same time, by formulating corresponding procedures to ensure the smooth progress of operations, the synergy of mergers and acquisitions can be realized.

 

Conclusion

In the process of overseas investment and mergers and acquisitions by foreign companies, obtaining the support of legal and financial professionals is an important measure to avoid risks. Especially at the stage when foreign companies have their own international experience and talents, relying on the help of international professional institutions with cross-border M&A experience is an effective way to facilitate transactions and reduce risks.

 

 

Author’s Bio

Name: Ajay Rastogi

Educational Qualification: LLB

Profession: Advocate / Lawyer

Work Experience: 20 Years of Legal Practice

Profile Link: https://lawjc.com/members/advajayrastogi/

 

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