Linklaters advises CMB International Securities and BOCI Asia on the first structured finance employee incentive scheme benefiting onshore employees of Hong Kong SAR listed Chinese companies

Linklaters advised CMB International Securities Limited (CMBIS), as arranger, and BOCI Asia Limited (BOCI Asia), as placing agent, on devising an employee incentive scheme of approx. HK$4.86bn for China Mengniu Dairy (Mengniu), as well as the structuring and placing of convertible bonds in connection with the scheme. The scheme is structured to benefit mainland China onshore employees using a bankruptcy remote structured finance vehicle. Under this scheme, an orphan SPV is set up by CMBIS to purchase the convertible bonds issued by Mengniu and placed by BOCI Asia, and issue repackaging notes backed by the convertible bonds to Mengniu’s onshore employees, through Qualified Domestic Institutional Investors (QDII). The orphan SPV has also entered into a facility agreement with China Merchant Bank to provide financing for the onshore employees.

There are various well established employee incentive schemes for employees based in Hong Kong, but as many of the Hong Kong listed Chinese companies have a large employee base in mainland China, these readily available structures in the market do not equitably incentivise all their employees. For decades, the market has been trying to work out a viable structure to enable both onshore and offshore employees of Hong Kong listed Chinese companies to benefit from the growth of the business. This scheme is the first in Hong Kong to creatively utilise bankruptcy remote SPVs, convertible bonds and QDII structures.

The Linklaters team was led by Structured Finance and Derivatives Partner Chin-Chong Liew and Global Head of Capital Markets Hwang Hwa Sim.

Partner Chin-Chong Liew, commented:

“We are extremely excited to have made this happen for the onshore employees, together with CMBIS. We are hoping to roll out this innovative structured finance product to the market so that more Chinese companies listed on the HKEX are able to share the returns with their hardworking employees onshore. Linklaters’ continuous involvement in handling bespoke structured products and equity-linked transactions is a strong testament of our capabilities and creativity.”