New Financing Channel for M & A     

China Banking Regulatory Commission (CBRC) issued rules on December 9th, 2008 covering bank financing of mergers and acquisitions, allowing commercial lenders (including foreign banks, joint venture banks) to provide loans for mergers and acquisitions activities with terms of less than five years.
   The move is intended to guide banks in offering M & A loans, improve their risk-control capabilities and encourage lenders to contribute to economic structure adjustment.
   Insiders in the petrochemical industry said the new rule would mean a new channel for financing at a time most companies are with tight capital position. This would help move forward regrouping and merging and make the industry more competitive.
   A big number of domestic companies are short of working capital and some even have cut or shut production as the prices for petrochemical products collapsed amid the worsening global economic climate. On the other side, some better-run companies with healthy financial positions are mulling acquisitions. "Every time there is an economic downturn, there comes an industry overhaul," said several petrochemical industry association officials.
   CBRC said the government has adopted a basket of measures over the past years to encourage large-size companies to conduct acquisitions so that they can become more competitive. The new M & A loans would help companies implement their internationalization strategy.
   The overseas M & As made by Chinese companies totaled US$45 billion in terms of deal value in the first 10 months of 2008, among which 17% are from the energy and chemical sectors.
   The petrochemical industry has represented a favorable growth in recent years, making it one of the attractive sectors for M & A, said an executive at Hina Group, a private equity. While doing M & As in the petrochemical sector is typically capital intensive, the new CBRC rule offers a fast track to petrochemical companies for financing.