What is ODI? ODI Review

ODI is the abbreviation of Outbound Direct Investment, which means overseas direct investment. In addition to real overseas investment, that is, acquiring equity or assets of real overseas operating companies, ODI also often appears in red chip structures. In order to build a red chip structure, cross-border restructuring is required to achieve the transfer of domestic equity structure to overseas.

(I) Legal Basis <br/>The basis for the review/filing of overseas investment by the NDRC is the Measures for the Administration of Overseas Investment by Enterprises ("Document No. 11"). Article 4 of Document No. 11 clearly stipulates that "investment entities that carry out overseas investment shall comply with the approval and filing procedures for overseas investment projects (hereinafter referred to as "projects"), report relevant information, and cooperate with supervision and inspection." Therefore, according to the provisions of Document No. 11, the procedures of the NDRC are divided into two types: approval and filing. In building a red chip structure, domestic enterprises need to remit funds to obtain equity in overseas enterprises, which falls under the provisions of Article 2 of Document No. 11, which stipulates that domestic assets are used to obtain overseas ownership, and therefore it falls under the provisions of Document No. 11, which stipulates overseas investment.

2. Which projects need approval? Which projects need to be filed?
1. Projects that require approval According to the provisions of Document No. 11, approval is required for sensitive projects. Sensitivity includes two situations: sensitive investment destination and sensitive industry.
(1) Sensitive investment destinations, including countries and regions with which my country has no diplomatic relations; countries and regions where war or civil unrest has occurred; countries and regions where enterprises’ investment needs to be restricted according to international treaties and agreements concluded or participated in by my country; and others.
(2) Sensitive industries, including the development, production and maintenance of weapons and equipment, cross-border water resources development and utilization, news media, and other industries that require restrictions on overseas investment. According to the provisions of State Council Document No. 74, the industries that require restrictions on corporate overseas investment include: (1) real estate (2) hotels (3) cinemas (4) entertainment (5) sports clubs (6) equity investment funds or investment platforms established overseas without specific industrial projects. Our company will not elaborate on this in detail.
2. Projects that require filing According to the provisions of Document No. 11, overseas investment projects that do not involve sensitive investment destinations and sensitive industries are subject to the filing system.
Therefore, according to the provisions of Document No. 11, most overseas investment projects need to complete filing at the NDRC stage, rather than approval, and this is especially true for RMB funds that need to go abroad when setting up a red chip structure. Because the direct destination of red chip overseas investment is generally the Cayman Islands, and the final destination is generally Hong Kong, China. The Cayman Islands is a British overseas territory, and Hong Kong, China is a Chinese territory, so the investment destination is not a sensitive area. The scope of sensitive industries stipulated in Document No. 11 is very narrow, and companies that set up red chip structures are generally non-sensitive industries, but it should be noted that the establishment of overseas investment funds or investment platforms is sensitive and requires approval.
3. At which level of the National Development and Reform Commission is the approval or filing completed?
1. According to the provisions of Document No. 11, the National Development and Reform Commission is responsible for all approval-type, i.e. sensitive overseas investments. In addition, the National Development and Reform Commission is also responsible for the filing of two types of non-sensitive projects, i.e. projects invested by centrally managed enterprises and projects invested by local enterprises with a total investment of more than US$300 million.
2. According to the provisions of Document No. 11, the provincial Development and Reform Commission is only responsible for the filing of one type of project, namely, projects with an investment of less than US$300 million by local enterprises.
4. What materials need to be submitted?
1. "Overseas Investment Project Registration Form", which details all aspects of overseas investment;
2. The registration certificate of the investment entity, usually a copy of the business license, and must be stamped with the official seal;
3. The equity structure of the investment entity traced back to the ultimate actual controller should first disclose the basic information of the direct shareholders or partners (including general partners and limited partners) of the investment entity. If the investment entity is a corporate enterprise, the top five shareholders and shareholders with a shareholding ratio of 10% or more should be disclosed; if the investment entity is a partnership, all general partners and the top five limited partners with the largest investment ratio should be disclosed. The equity structure should be penetrated to the ultimate actual controller (the ultimate actual controller includes a single actual controller and a joint actual controller, which should generally be a natural person or a state-controlled entity). The fund generally has a complex structure, and this process is relatively trivial. Our company has encountered a fund that needs to be penetrated 25 levels;
4. The latest audited financial statements of the investment entity, which shall be the most recent annual or semi-annual financial statements and shall be stamped with the official seal;
5. Investment decision documents of the investment entity, generally resolutions of the shareholders' meeting and the board of directors, and should be stamped with the official seal;
6. A legally binding investment agreement or similar document, usually an overseas share subscription or transfer agreement. It should be noted that if it is an English agreement, a Chinese translation is required. In the projects undertaken by our company, a separate Chinese share purchase agreement will generally be signed separately;
7. Supporting documents proving the authenticity and compliance of the source of investment funds. If it is self-owned funds, it is generally a bank deposit certificate or other documents;
8. Letter of commitment on the authenticity of overseas investment. The investment entity should submit a letter of commitment with its official seal.