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Lidings advises China’s largest car manufacturer

Lidings acts as legal advisor to Beijing Automotive Industry Company (BAIC), the largest manufacturer of commercial and agricultural transport in China, on a joint venture project for the establishment of a production line in Ulyanovsk region.

Chinese automotive giant has entered the Russian market by way of establishing a joint venture with an Ulyanovsk-based company “BAW Motor Corporation”, part of the Russian AMS Group. At the moment the parties have concluded agreement on the sale of shares in a joint venture as well as agreement concerning the rights of participants, and are now actively collaborating to close the deal.

Lidings, working closely with a prominent Chinese law firm King & Wood and Mallesons, is providing full legal support of the JV which includes advising on various Russian law matters and ensuring that the provisions governed by foreign law chosen by the parties are in compliance with the Russian legislation. Lidings also supports the acquisition of shares in the JV by the Chinese party.

BAIC, the fifth largest automaker in China, is producing a wide range of vehicles, from grain trucks to licensed passenger Hyundais and Mercedeses. In Russia the company intends to produce trucks under its own brand BAW. The vehicles have been developed taking into account specifics of the region and, as promised by the manufacturer, should be “affordable, reliable, and maintainable”.

Lidings’ partner Andrey Zelenin heads the project team. A particular aspect of the transaction is the complex structure of relationship between the parties: 50% of shares in the JV will be transferred by the Russian side to two Chinese companies within the BAIC holding to cover the debt owed to one of these companies, a supplier of spare automotive parts.

“The transaction is basically structured as a debt-for-equity swap, though due to specific requirements of the Chinese law this will be implemented by way of a phased payment for the purchased shares in a joint venture, with the Russian party subsequently using the received funds to gradually repay its debt”, comments Vadim Konyushkevich, a senior corporate lawyer at Lidings. “The complexity of the project lies in the absence of direct legislative regulation of this type of transactions that would allow to minimize the purchaser’s risks in case of breach of a contract by the other party. Precisely we would be talking about an escrow account – a special bank account commonly used in M&A practice worldwide. It should be noted that draft amendments to the Civil Code recently introduced to the State Duma by the Russian President propose introduction of such instrument and contain an outline of regulation for the establishment and operation of such accounts”.

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