16 January 2019

KMW advises Yingkou Port Group on the closing of the RMB58.9 billion acquisition, a marketized debt-to-equity swap

On 28 November 2018, Liaoning Port Group Co., Ltd. ("Liaoning Port Group", formerly named as Liaoning Northeast Asia Ports & Shipping Development Co., Ltd.), Yingkou Port Group Company ("Yingkou Port Group") and over ten bank creditors successfully signed the definitive documents and closed the marketized debt-to-equity swap of Yingkou Port Group. The swap takes the form of acquisition, where Liaoning Port Group and bank creditors subscribed for new registered capital of Yingkou Port Group with cash, relevant equities and debt claims (approximately RMB 58.9 billion in total).

Yingkou Port is the largest domestic trade container hub port in Northeast China, and also an important transit port for the "Belt and Road" Sino-European sea-rail intermodal transportation. This debt-to-equity swap is an important part of Liaoning Ports Integration Transaction, and it helps reduce the overall asset-liability ratio of Liaoning Port Group as the holder of port assets in Liaoning province, reduce the debt burden of Yingkou Port Group, and thus promoting the sustainable and healthy development of Yingkou Port Group. This debt-to-equity swap fully followed the principles of marketization and rule of law from overall structuring, negotiation, signing to implementation. The parties conducted thorough negotiations and balanced consideration of interests on the basis of equality and voluntariness, and promoted the debt restructuring of Yingkou Port Group with the marketized debt-to-equity swap. The transaction is in line with the structural de-leveraging policy orientation of the CPC Central Committee and the State Council, and is of important reference for further promoting and encouraging the reform of SOEs and the balance sheet improvement of debtors through marketized debt-to-equity swaps.

As the legal counsel of Liaoning Port Group, the transaction team of the People’s Government of Liaoning Provice, KWM advised on the plan, feasibility, implementation approach and deal structure of this debt-to-equity swap; conducted due diligence on the debtor and implemented bridge financing arrangements; participated in the coordination with relevant government departments; drafted and negotiated transaction documents; and coordinated and facilitated effective communications between the port stakeholders and relevant state ministries, provincial and municipal authorities and bank creditors. KWM team combined all necessary resources across the firm, and utilized extensive experiences in debt restructuring and M&A, as well as one-stop comprehensive service capabilities to provide efficient, high-quality and professional legal services. The transaction  was highly demanding, with the innovative plan design, the enormous due diligence workload, the amount of stakeholders involved, the tight schedule and the complicated approval process. KWM team overcame all these difficulties and assisted the client to sign and close the deal successfully, received high recognition from all participants.

Mr. Zhang Yi, Chairman of the KWM China Management Committee, commented: "It is of great significance for KWM to participate in the marketized debt-to-equity swap of Yingkou Port Group, and to facilitate China’s marketized debt-to-equity swap process with expertise. As China continues to promote the supply-side structural reform and to implement the five key tasks for the reform, KWM has been leveraging its extensive experiences and strengths to assist with each key transaction in this process. This has also become the guidance and driving forces for our continuous innovation and we have deeply felt the sense of mission in the era."

Ms. Wang Ling, managing partner of KWM, noted: "The success of this marketized debt-to-equity swap is not only attributable to the huge amount of debt and creditor institutions involved, but also lies in the enormous complexity of the transaction and the high quality. It will have far-reaching influence on the future development of the debtor. The transaction is of milestone significance by establishing a precedent for large-scale enterprises to turn difficulties into opportunities through marketized debt restructuring."

Ms. Tang Yiyun, the leading partner of this transaction, said: "This transaction is a crucial part to the strategic cooperation between central and regional SOEs regarding Liaoning ports. Under the guidance and coordination of officials and ministries of various levels, Liaoning participants, strategic investors, banks and various intermediaries, including the KWM team, worked together to address all kinds of unprecedented challenges and issues, and finally achieved satisfactory results."

Mr. Lv Yinghao, partner of KWM finance and capital department, said: "With close collaboration among the client, creditors and professional intermediaries, KWM has fulfilled its mission and delivered premium and efficient solutions for the most difficult and complicated legal issues. We are grateful to all participants for their understanding and support in this process, and are proud of what we have accomplished in the transaction."

The KWM team was led by Tang Yiyun and the team includes partners Lv Yinghao and Zeng Tao.

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