The legal department of China Minmetals: Forging solid solutions for globalising SOE
If the past decade of his tenure at China Minmetals is anything to go by, You Yong has little doubt that the coming years will see further evolution of his legal department – more growth, new strategic roles and involvment in more challenging deals around the world.
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Quick facts: China Minmetals’ major overseas ventures 2009-2010
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Transaction
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Country
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Legal advisors
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OZ Minerals acquisition
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Australia
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Blake Dawson in AU, Allen & Gledhill in SG.
No PRC legal advisors
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Injecting MMG (assets acquired from OZ Minerals) to MMR, a Hong Kong-listed company (01208.HK)
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Hong Kong
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Seller's advisors: Freehills in AU, Allen & Gledhill in SG, Linklaters in HK;
Buyer's advisors: Deacons in HK, Blake Dawson in AU.
No PRC legal advisors
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Iron ore project with SNIM
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Mauritania
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Mayer Brown
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You Yong, who joined the group 10 years ago, has worked his way up the corporate ladder. In April 2010, he was promoted from deputy manager to the general manager of the group’s legal department. As the company has transformed from an import and export company into a global leading metal and mining group, the roles of You and his legal department have undergone constant modifications and improvements.
Today, You reports directly to the group’s vice president and general counsel Sun Xiaomin, and leads a team of 12 accomplished in-house legal counsels at the headquarters and more than 30 other counsels based in the group’s key subsidiaries and branch offices. The head office legal team is divided into five groups according to their unique functions: contract management, dispute resolution, investment management, regulatory and compliance and general affairs.
“The legal department’s development now focuses mainly on three aspects – professionalism, specialisation and knowledge,” says You. “In recent years, the function of the department has significantly diversified and expanded to include advisory role to senior management, legal risk management, facilitating deal execution, regulatory and compliance and legal education.”
In the past decade, the organisation has burgeoned from a 2,000-employee trading company into a global conglomerate with over 170,000 employees across around 500 companies in which Minmetals behaves as a controlling shareholder (including 44 companies in 15 countries and regions overseas, but not including the newly-joined HNG and its subsidiaries). The expansion of the group has outstripped the growth of the in-house legal team. You stresses there is an urgent need to scale up the size of the 11-year old department. “The group’s strong business development and the legal department’s broadening responsibilities have created a tremendous amount of work for the team. We’ll continue to increase the headcount of the in-house legal counsels and strengthen our internal legal function across the whole group in the coming years,” says You.
The company’s US$1.4bn acquisition of Oz Minerals in Australia, completed last June, is one of the successful deals that showcase the legal team’s credentials and expertise. It was awarded the Energy and Resources Deal of the Year at the 2010 ALB Australasian Law Awards. The landmark transaction was originally structured to include the acquisition of 100% of OZ Minerals but had to be restructured following the Australian government’s objection to the acquisition of the Prominent Hill mine in the Woomera Prohibited Area. China Minmetals and OZ Minerals, together with their external advisors, renegotiated and revamped the transaction within a very tight time frame. In addition, the need for complex restructuring (to de-link corporate entities holding assets being sold from those being retained by OZ Minerals and re-financing of loans at completion) had led to a complex escrow agreement and completion process. The in-house team and its Australian legal advisor – Blake Dawson – also had to swiftly respond to a rivalry refinancing bid offered by Macquarie Bank during the process of the transaction.
Keys to successful outbound M&A
China Minmetals has been actively involved in the exploration and production of minerals and the development of mining projects both within and outside China. Over the past few years, the group’s strategy has been to become a globally competitive mining group through overseas M&As. So far, it has successfully completed several acquisitions of mining companies, projects and assets in Africa, Latin America and Australia. As a result, the investment management group has been one of the busiest in the legal department and has gained significant experience and recognition in cross-border M&A transactions.
You Yong, also the team leader for investment management, finds that safeguarding the central-level state-owned enterprise is a challenging and demanding task, but is also one that offers great satisfaction and intellectual excitement.
“Chinese SOEs are very likely to encounter certain level of resistance and concern from the local government and business communities when making major acquisitions abroad, particularly in the natural resources sector. The wary ambivalence can add another challenge to the deal teams and legal advisors alike,” says You.
With a good understanding of potential barriers facing its client and extensive exposure to M&A deals, the team has worked out an effective system to assist the company in dealing with these challenging issues and ensuring best outcome of every transaction.
He sums up the four key issues in overseas M&A: a comprehensive grasp of the political, social and legal environment in the target jurisdiction; thorough preparation (including plans to deal with worst-case scenarios); adequate communication with all stakeholders—politicians, media, communities, employees; and paying close attention to corporate social responsibility issues such as environment protection, labour welfares, occupational safety and health and community development.
Leveraging international expertise
The members of the in-house team are undoubtedly experts on PRC law and very capable of handling domestic matters, but how can they gain a grasp of the legal and regulatory framework in a large number of foreign countries and effectively control risks to projects and investments in these countries? It is a pressing question facing You and many other legal managers of globalising Chinese companies.
You’s approach to tackle this issue is to establish good relationships with large international law firms and leading law firms in different jurisdictions. Currently, the legal department is in active contact with about 200 law firms from all over the world, and receive frequent regulatory updates, client alerts, seminars and training sections offered by these firms, which help keep legal mangers like You up-to-date with new foreign laws and regulations and changes in foreign investment policies of different countries.
“Frankly, our knowledge about the legal system, common practice and the leading local law firms in many emerging markets, such as in Africa and South America, are limited. We need to leverage the expertise, insight and resourceful global network of international firms to oversee and manage legal affairs and compliance issues in these jurisdictions,” says You. “For projects and transactions in these places, we prefer to appoint a competent international firm as our primary counsel, and through the international firm’s recommendation we will find an appropriate local legal advisor. The international firm and its recommended local firm will then be jointly liable to our company. So we are able to ensure high quality of the services and efficient communication through the primary counsel. It’s been an effective way to minimise risks.”
Having a strong presence and extensive experience in both China and the foreign jurisdictions where the group’s projects and transactions are taking place, therefore, is a prerequisite for any international firms who want to work for China Minmetals in cross-border transactions. It’s also essential for these firms to have Chinese partners acting as the lead coordinator, as You points out that cultural gap and mis-communication still exist between international firms and Chinese clients. Without the critical link, even some of the world’s top law firms can hardly become a trustworthy and value-adding advisor to Chinese companies.
“We have a transparent and systematic mechanism for selecting external counsel. We pay very close attention to the firms’ reputation, scale, experience, and the credential and ability of the deal team and its lead partner,” says You. “For international firms, we particularly require their lead partners to have a thorough understanding of the Chinese and international common practices and market rules. These partners must also have a very high level of communication skills and be able to adequately bridge the gaps and differences instead of magnifying them.”
“It’s a widely accepted idea that for Chinese companies to be globally competitive they have to learn and apply international best practices and adapt to the local culture in the foreign market,” says You. “But now the importance of understanding Chinese business culture and respecting the decision-making procedures and approval requirements of the headquarters of Chinese companies has been increasingly recognised by our foreign legal service providers and business partners.” ALB