19 Aug 2015
Hong Kong Services for Mainland’s Outbound Investment (1): Rational Organisational Structure Facilitates Corporate Fundraising
As China gradually opens up its capital market, mainland enterprises now have an enhanced range of financing options to consider. Apart from raising funds via mainland channels, they can also consider using other modes of offshore financing in order to seek cost-effective funds to support the development of their domestic and foreign operations. The professional legal services provided by Hong Kong can help mainland enterprises improve their organisational structure and enhance the quality of their corporate governance. This will allow them to better align with their international counterparts, thereby ensuring they are well-positioned to obtain sustainable financial support on the international capital markets.
Clear Description of Financing Requirements
Explaining the benefits of using Hong Kong legal services, Mak Ka Wing Patrick, a Hong Kong-based lawyer said: “Consider the case of raising funds by way of listing overseas as an example. Mainland enterprises not only have to possess the right business development model, but must also have a rational organisational structure in place, as well as a clear description of the conditions of the project they are raising funds with regard to. This needs to include its organisation of its legal entity, shareholding and capital structure, distribution of the equities of the project or company concerned and so on, before they can effectively attract the interest of investors.”
Patrick Mak & Tse Solicitors is a legal firm established in Hong Kong. In addition to providing legal services locally, the firm has also set up a representative office in the city of Jinan in the Shandong province. The firm also operates in association with a mainland partner in the form of partnership in Qianhai, a commercial development zone in Shenzhen. This offers mainland enterprises a range of legal services, including advice on foreign law, overseas listings, financing, international patent and other commercial matters. Apart from raising funds for mainland enterprises on the Hong Kong market, the firm also makes use of its network and the experience of its team of lawyers to identify the right international financing channels for their mainland clients in such overseas countries as the US and the UK.
Speaking to HKTDC Research, Mak said: “The mainland financial market has been developing in leaps and bounds over recent years, yet most of the funds go to large enterprises. As a result, a number of small and medium-sized enterprises (SMEs) – many of them with considerable potential - find it difficult to obtain sufficient funds or low-cost capital in order to expand their business. In this regard, offshore financing channels can offer extra options for these enterprises.”
Obtaining Sustainable Financial Support
Emphasising the role Hong Kong legal practitioners can play, Mak said: “Apart from identifying suitable financing channels, Hong Kong lawyers can also provide mainland enterprises with the relevant professional advice in order to help them undergo business restructuring and make improvement to their corporate structure. This can, in turn, help such companies when it comes to fundraising projects or when they look to go public. Such support can ensure they comply with international standards, thereby enhancing their corporate governance and ensuring it aligns with international standards. All of this not only improves the international image of any mainland enterprise, but can also help them obtain sustainable financial support in the mature Hong Kong and international capital markets.”
In recent years, as the international trade and outbound investment activities of enterprises based in Shandong and in other mainland regions has continued to expand, their demand for relevant financing services has also grown. SMEs’ lack of knowledge about overseas financing, however, has undermined their ability to make flexible use of the mainland, Hong Kong and international capital markets in order to obtain funds for financing their international business at a lower cost.
According to Mak, Hong Kong lawyers are well versed in the legal environment and business culture of the mainland, as well as that of many overseas markets, while they also have extensive worldwide networks. As such, they can effectively provide mainland enterprises with custom-made solutions in order to help them undertake corporate financing in Hong Kong (or in other suitable markets) for their international trade and overseas investment projects.