China Eases Rules On Merger And Acquisition Loans To Enhance Technological Innovation

China has introduced relaxed rules for merger and acquisition loans targeting technology firms. This pilot programme aims to boost sci-tech innovation and strengthen China's technological edge. The financial regulator announced these changes on Wednesday, highlighting the country's commitment to enhancing its competitive stance in the tech sector.

Banks involved in this initiative can now lend up to 80% of transaction values for acquisitions involving controlling stakes in tech companies. This is an increase from the previous 60% cap, according to China's National Financial Regulatory Administration. The change addresses long-standing financing challenges faced by tech firms engaged in strategic mergers.

The programme covers 18 cities, including Beijing, Shanghai, Shenzhen, and Chengdu. It focuses on areas with strong innovation ecosystems like the Beijing-Tianjin-Hebei region, the Yangtze River Delta, and the Greater Bay Area. Regional hubs such as Wuhan, the Chengdu-Chongqing area, and Xi'an are also included.

Loan repayment terms have been extended to a maximum of 10 years from the previous seven-year limit. This extension provides more flexibility for tech companies seeking financial support for their growth initiatives. Eligible banks include major state-owned lenders, joint-stock banks, and urban commercial banks with robust risk management capabilities.

To qualify for these loans, tech companies must demonstrate strong research and development capabilities and clear market potential for commercialising technologies. They also need solid credit histories to be considered eligible under this programme.

Expansion of Equity Investment Programme

The National Financial Regulatory Administration has also announced plans to expand a pilot programme for equity investments by financial asset investment companies. The geographical scope will extend from pilot cities to entire provinces where these cities are located. This expansion aims to attract more social capital participation.

The policy encourages eligible commercial banks to establish financial asset investment companies, increasing participating institutions' numbers. Additionally, it seeks to enhance insurance funds' role in the programme by promoting their involvement to leverage insurance capital's long-term investment advantages.

Since its inception in 2017, this programme has facilitated over 350 billion yuan (approximately US$48.3 billion) in signed investments. These investments have supported tech innovation and contributed significantly to private enterprises' growth.

This initiative reflects China's strategic focus on fostering technological advancements while addressing financing barriers faced by tech companies pursuing mergers and acquisitions.

With inputs from WAM