Environmental concerns in Chinese transactions, Paul Davies (May 2012)
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Transcript of Environmental concerns in Chinese transactions, Paul Davies (May 2012)
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ENVIRONMENT: THE CHALLENGE
PAUL DAVIES
2012
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ENVIRONMENT: THE CHALLENGE
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ENVIRONMENT
• AGENDA
– Environmental Risks
– Structuring Transactions
– Due Diligence
– Risk Management and Solutions
– Case Study
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ENVIRONMENTAL RISKS
Contamination- Same issues as contaminated land – but consider, contamination in water can easily spread and effect manypeople
Waste- Stewardship – cradle to grave- Know your waste- Consider final end disposal
Hazardous substances- Fully evaluate/audit supply chain?- Hazardous substances in products - Asbestos- Brand issues?
REACH- Placing the onus on producers/manufacturers- Supply chain- Information disclosure issues- Combined effects
Quality issues- Product liability
Reclamation/remediation- Liability transfer
Contamination- Contamination/nuisance Issues- Triggers for remediation and also publicity- Disclosure issues – access to information
Climate change- Risks of climate change include increase in litigation from effects of climate change- Difficult causation issues
Air pollution- Nuisance issues- Air quality
Flooding?- See climate change“Water is the new carbon”
- Undervalued commodity- Increasingly valued and scarcity will lead to increase in contentious issues
ENVIRONMENTAL RISKS
AIR
WATER PRODUCTS
LAND
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STRUCTURING TRANSACTIONS
• Corporate Interests
– Shares, Assets, Joint Ventures, Minority Interests
• Property Rights
– Freehold, Leases
• Others
– Acquisition of Debt
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STRUCTURING TRANSACTIONS
• Corporate Interest
– Share Acquisitions
• Former Businesses and Former Properties
– Asset Acquisitions
• Assumed/Excluded Liabilities
– Joint Ventures
• Issues over Control
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STRUCTURING TRANSACTIONS
• Property Rights
– Nature of Interest
– Indirect risk – delay in obtaining product, value of interest
• Acquisition of debt
– Lender liability issues?
– Underlying value of secured asset
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DUE DILIGENCE
• Nature of transaction and interest being acquired
• Vender due diligence and Purchaser due diligence
• Supply chain issues
• Role of Consultant
– Liability issues and operational issues
– New risks: Climate change, supply chain
– “Deep diving”
• Efficiency savings for investment?
• Turnaround potential – Costs vs Rewards
• Eco screening for institutional investors
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RISK MANAGEMENT AND SOLUTIONS
• Warranties and Indemnities
– Traditional protection
– Increasingly unreliable – Covenant strength/Restructuring?
• Baselines?
– Certainty in scope
• Insurance
– Difficult for environmental issues
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RISK MANAGEMENT AND SOLUTIONS
• Innovation
– Escrow arrangements
– Fixed Price Remediation/Liability buy-outs
– More sophisticated cost models and liability allocation
– Regulatory Comfort
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CASE STUDY
• Commodities Co based in China is looking to invest in natural resources
businesses. It comes across Dirty Steel Co, a business within Conglomerate Co,
which has been operating for over 100 years in Europe and, in particular,
Germany. Commodities Co strikes a deal to buy the shares of Dirty Steel Co for
US$800 million. It is looking to close certain loss making plants and upgrade the
most profitable plants, considerably increasing production in order to meet
expected demand from another investment owned by Commodities Co.
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CASE STUDY
• Options
– Assets vs Shares
– Due diligence
– Environmental protection?
– Regulatory comfort?
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ENVIRONMENT
PAUL DAVIES
Macfarlanes LLP 20 Cursitor Street London EC4A 1LTT +44 (0)20 7831 9222 F +44 (0)20 7831 9607 DX 138 Chancery Lane www.macfarlanes.com
This presentation is given on behalf of Macfarlanes LLP. Macfarlanes LLP is not authorised under the Financial Services and Markets Act 2000, but it is able in certain circumstances to offer a limited range of investment services to clients because it is regulated by the Solicitors Regulation Authority. It can provide
these investment services if they are an incidental part of the professional services it has been engaged to provide. © Macfarlanes LLP 2011