13 January 2015

Case study: Plan A

The brief

King & Wood Mallesons was engaged to advise Wisdom Holdings Group (Wisdom) on its HKD 844 million initial public offering in Hong Kong. The listing is notable as one of the few PRC media companies listed in Hong Kong in recent years. Wisdom is a media investment services provider, TV programs producer, distributor, and sports competitions organizer in China.

Big picture

There are a number of industries in China where MOFCOM imposes restrictions on foreign ownership control.  The television production operation of Wisdom is one such restricted business that does not allow foreign ownership in excess of 49%.  Wisdom has adopted a Variable Interest Entity (VIE) in respect of the television programme production operation. VIE is originally an accounting concept referring to an entity in which the investor holds a controlling interest that is not based on the majority of voting rights and the results are consolidated into that of the investee. This kind of VIE structure has been mirrored in China to restructure companies and operations which are subject to foreign ownership control – for example, in the telecommunications, media and technology sector, and also within the education sector.

Regulators in Hong Kong (including the Stock Exchange and the Securities and Futures Commission) are fully aware of the use of VIE structure and have been very cautious in approving company seeking listing using VIE structure.

AQ in action

  • Wisdom first approached King & Wood Mallesons for assistance with an A share listing in China. Due to the tightened offering window in the domestic A share market, we advised the client to seek listing overseas, with Hong Kong being the first venue of choice.
  • King & Wood Mallesons' Hong Kong and Beijing offices worked together on this IPO, as the issuer’s Hong Kong and PRC counsels. Using a connected approach between both offices, Wisdom trusted that the Hong Kong counterpart of our PRC team would deliver a seamless, ‘one-stop shop’ experience throughout, especially important given the VIE corporate structure that they operate.
  • King & Wood Mallesons China has advised on a substantial number of cases involving a VIE structure. We understood the cautious regulatory environment and were able to advise the best way forward. In this respect, Wisdom viewed KWM as the ‘go to’ firm in Hong Kong, based on this experience. 

Value delivered

The deal reinforced the "home market" theory of Hong Kong when Chinese companies seek a listing on an international overseas market. From our Hong Kong and Mainland China offices, we connected the client to seamless Hong Kong and PRC law advice in the equity capital markets transaction.

The IPO is also an important step for Wisdom.  Just one year after being listed, it has started to explore acquisition opportunities in overseas jurisdiction.

A Guide to Doing Business in China

We explore the key issues being considered by clients looking to unlock investment opportunities in the People’s Republic of China.

Doing Business in China
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