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Synergy & Rebirth: Reshaping Regulations for Bank M&A Loans

2026-01-19

Authors: Ting ZHENG丨Eryin YING丨Shirley LIANG丨Hattie ZHANG

On 31 December 2025, the National Financial Regulatory Administration (hereinafter referred to as the "NFRA") officially issued the Administrative Measures for the M&A Loans of Commercial Banks (hereinafter referred to as the "Official Measures for M&A Loans", 《商业银行并购贷款管理办法》). Prior to this, the consultation draft of these Measures (hereinafter referred to as the "Draft Measures for M&A Loans") was issued for public comments on 20 August 2025. Building on a systematic summary of past regulatory practice in M&A Loans, the Official Measures for M&A Loans constitute a comprehensive revision and refinement of the existing regulations. The new Measures intend to formally replace the Guidelines on Risk Management of Mergers and Acquisitions Loans of Commercial Banks (hereinafter referred to as the "2015 Guidelines", 《商业银行并购贷款风险管理指引》) issued by the China Banking Regulatory Commission (the "CBRC").

This article will focus on outlining the main revisions in the Official Measures for M&A Loans, and flag out key points worth attention and propose recommendations for reference by relevant market participants regarding compliance and practical operations of banks' M&A Loan business.

Evolution of M&A Loans Regulatory Rules

I. 2008: The Initial Breakthrough

On 6 December 2008, CBRC promulgated the Guidelines on Risk Management of M&A Loans of Commercial Banks (hereinafter referred to as the "2008 Guidelines",《商业银行并购贷款风险管理指引》), which broke through the principled restriction under Article 20 of the General Rules of Loans (《贷款通则》) issued in 1996 stating that borrowers "shall not use loans for equity investment, unless otherwise stipulated by the state" and allowed qualified commercial banks to launch M&A Loan businesses. This marked the complete lifting of the ban on commercial banks entering the onshore corporate M&A market. Prior to this, in practice, only some foreign funded banks and policy banks with special authorization from CBRC, were allowed to finance large state-owned enterprises for their offshore M&A activities. According to the Q&A of a CBRC officer regarding the 2008 Guidelines^[1], the issuance of these Guidelines was intended not only to respond to the international financial crisis and broaden enterprise financing channels, but also to serve as a prudent first step, striking a balance between meeting market demand and controlling banking risks.

II. 2015: First Optimization

In 2015, CBRC revised the 2008 Guidelines and issued the 2015 Guidelines, introducing three (3) key relaxations: (1) moderately extending the maximum tenor of M&A Loans from five (5) years to seven (7) years; (2) moderately raising the upper limit on the proportion of M&A Loan amount to the transaction consideration from 50% to 60%; and (3) revising the mandatory requirement for security on M&A Loans into a principle-based provision, while deleting the requirement that security conditions shall be higher than those for other types of loans, to allow commercial banks to reasonably determine security conditions to prevent the risks of M&A Loans based on the risk profile of the M&A project and the credit status of the acquiring enterprise.

III. Recent Years: Pilot Explorations

In recent years, regulatory authorities have conducted small-scale innovations and explorations of M&A Loan regulations in specific regions and sectors through issuing relevant pilot policies, such as "non-resident M&A Loans in the Lin-gang Special Area" and "M&A Loans for technology enterprises". These initiatives have accumulated valuable experience for this current comprehensive revision (detailed further in the subsequent sections).

IV. August 2025: Comprehensively Revised Draft Measures for M&A Loans

On 20 August 2025, NFRA comprehensively revised the 2015 Guidelines to form the Draft Measures for M&A Loans, in order to adapt to the development needs of the M&A market under new circumstances and to facilitate industrial transformation and upgrading. The main revisions in the Draft Measures for M&A Loans include:

(1) Broadening the application scope of M&A Loans: on the basis of the 2015 Guidelines only applying to controlling M&A transactions (控制型并购交易), allowing M&A Loans to support equity participation M&A transactions (参股型并购交易) that meet certain conditions;

(2) Optimizing loan conditions: raising the upper limit on the proportion of controlling M&A Loan amount to the M&A transaction consideration, and extending the maximum loan tenor;

(3) Establishing differentiated business qualification requirements: for commercial banks conducting controlling and equity participation M&A Loan businesses, in addition to requirements such as sound regulatory ratings and compliance with key prudential regulatory indicators, further differentiated asset size requirements are imposed; and

(4) Emphasizing solvency assessments: requiring banks to, after comprehensive consideration of risks related to M&A transactions, focus on assessing the solvency of the acquirer, and simultaneously, pay attention to the development prospects, synergies and operational benefits of the enterprise concerned after the M&A transaction, and assess the impact on M&A Loans from multiple dimensions.

V. December 2025: Official Issuance of the Official Measures for M&A Loans - Meticulous

Refinement from Framework to Details

Compared to the Draft Measures for M&A Loans, the Official Measures for M&A Loans maintain the core reform framework while introducing refined adjustments characterized as "one (1) relaxation, two (2) tightenings, and one (1) clarification", fully reflecting the regulators' positive response to market feedback.

One (1) relaxation: Introducing flexibility in payment methods - the mandatory requirement under the Draft Measures for M&A Loans that payments "shall be made through entrusted payment" is adjusted to "shall, in principle, be made through entrusted payment" leaving room for special transaction scenarios in which entrusted payment is not feasible.

Two (2) tightenings: (1) The Official Measures for M&A Loans for the first time explicitly require that, for Enhancing Controlling M&A Loans (as defined below, 增强控制型并购贷款), the proportion of equity acquired by a single acquirer in a single transaction shall not be less than 5%; and (2) Article 29 of the Official Measures for M&A Loans lowers the concentration cap on M&A Loans to a single borrower from 5% (under the 2015 Guidelines and the Draft Measures for M&A Loans) to 2.5%, thereby significantly strengthening risk dispersion requirements.

One (1) clarification: Article 27 of the Official Measures for M&A Loans clarifies that, where M&A Loans are used by the acquirer to replace the M&A transaction consideration previously paid by the acquirer, the 1-year interval is calculated from the first drawdown date to the completion of full payment of the M&A transaction consideration to be replaced, which clarifies the concept of "loan processing date" and "the completion of payment of the M&A transaction consideration" in the Draft Measures for M&A Loans.

Key Points of the Official Measures for M&A Loans

To provide an intuitive comparison of the major changes among the Official Measures for M&A Loans, the Draft Measures for M&A Loans, and the 2015 Guidelines, the relevant provisions are set out in the table below (with strikethroughs and red text indicating the main differences among the three (3) rules, and blue text highlighting key differences between the Official Measures for M&A Loans and the Draft Measures for M&A Loans). On this basis, we have also proposed corresponding practical points of attention and recommendations.

I. Purpose of M&A Loans: restricting repayment of "expenses"

The Official Measures for M&A Loans	The Draft Measures for M&A Loans	The 2015 Guidelines
Paragraph 1, Article 3 "M&A Loans" under these Measures refer to loans granted by commercial banks to onshore acquiring enterprises or their subsidiaries for the purpose of paying the consideration for M&A transactions and (including transaction expenses.	Paragraph 1, Article 3 "M&A Loans" under these Measures refer to loans granted by commercial banks to onshore acquiring enterprises or their subsidiaries for the purpose of paying the consideration for M&A transactions (including transaction expenses).	Article 4 "M&A Loans" under these Guidelines refer to loans granted by commercial banks to acquirers or their subsidiaries for the purpose of paying the consideration for M&A transactions and expenses.

Interpretation: Based on the 2015 Guidelines, the Draft Measures for M&A Loans narrowed the term "expenses" to "transaction expenses", which triggered discussions within the industry regarding the scope of expenses that may be paid with M&A Loans. The Official Measures for M&A Loans revert to the original wording of the 2015 Guidelines, indicating that the scope of expenses payable with M&A Loans has not been changed. In practice, such expenses generally refer to taxes and expenses, as well as intermediaries fees (such as audit, valuation, and legal fees) related to M&A transactions, and do not include financing costs.

II. M&A Implementation Entity: emphasizing investment capacity requirement

The Official Measures for M&A Loans	The Draft Measures for M&A Loans	The 2015 Guidelines
Same as the Draft Measures for M&A Loans	Paragraph 2, Article 3 The "subsidiary" referred to in the preceding paragraph means a wholly-owned or controlled subsidiary of the acquirer which is mainly engaged in investment management.	Paragraph 2, Article 3 The M&A transaction can be carried out by the acquirer through a wholly-owned or controlled subsidiary which is specifically established without other business activities (hereinafter referred to as the "subsidiary").

Interpretation: Paragraph 2, Article 3 of the 2015 Guidelines expressly provides that the M&A implementation entity can be a wholly-owned or controlled subsidiary of the acquirer "which is specifically established without other business activities". However, Paragraph 2, Article 3 of both the Official Measures for M&A Loans and the Draft Measures for M&A Loans revise the scope of the M&A implementation entity to a wholly-owned or controlled subsidiary of the acquirer "which is mainly engaged in investment management". We understand that the regulatory intent is to ensure that the M&A implementation entity and/or the borrower under an M&A Loan shall possess the corresponding investment expertise, management experience and capacity to assume liabilities. When determining whether the relevant entity possesses the aforementioned capabilities, various factors may be taken into account, including its business scope, historical investment performance and financial statements may be considered comprehensively. With respect to shell companies established solely for the purpose of an M&A transaction, we currently tend to believe that they will not satisfy the requirements under the Official Measures for M&A Loans.

Regarding whether an offshore subsidiary of the acquirer can serve as the M&A implementation entity, during the implementation period of the 2015 Guidelines, there were numerous precedents where banks provided M&A Loans to the offshore subsidiaries of onshore acquirers, and further to the 2015 Guidelines, the Official Measures for M&A Loans do not impose any restriction on the place of incorporation of the M&A implementation entity. Thus, we tend to take the view that, banks may provide M&A Loans to the offshore subsidiaries of onshore acquirers under the Official Measures for M&A Loans, provided that applicable foreign lending regulations are observed. It is worth noting that, in accordance with Article 7 of the Circular of the People's Bank of China and the State Administration of Foreign Exchange on Relevant Issues concerning the Offshore Loans of Banking Financial Institutions (《中国人民银行国家外汇管理局关于银行业金融机构境外贷款业务有关事宜的通知》, "Circular No.27"), offshore loans granted by onshore banks shall, in principle, be used for the relevant expenditure within the business scope of the offshore enterprises and the funds shall not be repatriated for use within China through onshore lending, equity investment, or similar arrangements. In practice, most offshore enterprises are not required to specify or publicly disclose a clear business scope under local laws, but often adopt a "general purpose" description. We understand that, in such cases, offshore enterprises borrowing M&A Loans can be deemed within their business scope, and thus generally should not be deemed as violating the restrictions on loan utilization under Circular No.27.

III. Type of M&A Loans: introducing equity participation M&A Loans

The Official Measures for M&A Loans	The Draft Measures for M&A Loans	The 2015 Guidelines
Article 4 M&A Loans are used to support the onshore acquiring enterprise in achieving actual control, merger, or equity participation in an established and continuously operating target enterprise or asset through means such as acquiring existing equity, subscribing for new equity, acquiring assets, or assuming debts. Based on their purpose, M&A Loans are classified into controlling M&A Loans and equity participation M&A Loans: (1) The controlling M&A Loan refers to a loan supporting a single acquirer or multiple acquiring enterprises acting in concert in obtaining the control rights of the target enterprise or assets. If a single acquirer has already obtained control rights over the target enterprise and intends to maintain or enhance its control rights, it may apply for a controlling M&A Loan when acquiring or subscribing for equity of the target enterprise, provided that the equity ratio acquired in a single transaction shall not be less than 5%. (2) The equity participation M&A Loan refers to a loan supporting a single acquirer in acquiring the equity in the target enterprise but without obtaining control, provided that the equity ratio acquired in a single transaction shall not be less than 20%. If a single acquirer has already held 20% or more of the equity of the target enterprise and intends to further increase its equity ratio without acquiring control, it may apply for an equity participation M&A Loan, provided that the equity ratio to be acquired or subscribed for in a single transaction shall not be less than 5%.	Article 4 M&A Loans are used to support the onshore acquiring enterprise in achieving actual control, merger, or equity participation in an established and continuously operating target enterprise or asset through means such as acquiring existing equity, subscribing for new equity, acquiring assets, or assuming debts. Based on their purpose, M&A Loans are classified into controlling M&A Loans and equity participation M&A Loans: (1) The controlling M&A Loan refers to a loan supporting the acquirer in obtaining control rights of the target enterprise or assets. If an acquirer has already obtained control rights over the target enterprise and intends to maintain or enhance its control rights, it may apply for a controlling M&A Loan when acquiring or subscribing for equity of the target enterprise. The acquirer under the preceding paragraph may be a single entity or multiple acquiring enterprises acting in concert. (2) The equity participation M&A Loan refers to a loan supporting a single acquirer in acquiring the equity in the target enterprise but without obtaining control, provided that the equity ratio acquired in a single transaction shall not be less than 20%. If a single acquirer has already held 20% or more of the equity of the target enterprise and intends to further increase its equity ratio without acquiring control, it may apply for an equity participation M&A Loan, provided that the equity ratio to be acquired or subscribed for in a single transaction shall not be less than 5%.	Paragraph 1, Article 3 "M&A" under these Guidelines refers to a transaction whereby the onshore acquiring enterprise achieves merger or actual control in an established and continuously operating target enterprise or asset through means such as acquiring existing equity, subscribing for new equity, acquiring assets, or assuming debts. Article 41 These Guidelines shall apply where a commercial bank grants a loan to an onshore acquiring enterprise that has already obtained control rights of the target enterprise and intends to maintain its control rights over the target enterprise, for acquiring or subscribing for the equity of such target enterprise.

The Official Measures for M&A Loans

The Draft Measures for M&A Loans

The 2015 Guidelines

Article 4 M&A Loans are used to support the onshore acquiring enterprise in achieving actual control, merger, or equity participation in an established and continuously operating target enterprise or asset through means such as acquiring existing equity, subscribing for new equity, acquiring assets, or assuming debts. Based on their purpose, M&A Loans are classified into controlling M&A Loans and equity participation M&A Loans:

(1) The controlling M&A Loan refers to a loan supporting a single acquirer or multiple acquiring enterprises acting in concert in obtaining the control rights of the target enterprise or assets.

If a single acquirer has already obtained control rights over the target enterprise and intends to maintain or enhance its control rights, it may apply for a controlling M&A Loan when acquiring or subscribing for equity of the target enterprise, provided that the equity ratio acquired in a single transaction shall not be less than 5%.

(2) The equity participation M&A Loan refers to a loan supporting a single acquirer in acquiring the equity in the target enterprise but without obtaining control, provided that the equity ratio acquired in a single transaction shall not be less than 20%.

If a single acquirer has already held 20% or more of the equity of the target enterprise and intends to further increase its equity ratio without acquiring control, it may apply for an equity participation M&A Loan, provided that the equity ratio to be acquired or subscribed for in a single transaction shall not be less than 5%.

(1) The controlling M&A Loan refers to a loan supporting the acquirer in obtaining control rights of the target enterprise or assets.

If an acquirer has already obtained control rights over the target enterprise and intends to maintain or enhance its control rights, it may apply for a controlling M&A Loan when acquiring or subscribing for equity of the target enterprise.

The acquirer under the preceding paragraph may be a single entity or multiple acquiring enterprises acting in concert.

Paragraph 1, Article 3 "M&A" under these Guidelines refers to a transaction whereby the onshore acquiring enterprise achieves merger or actual control in an established and continuously operating target enterprise or asset through means such as acquiring existing equity, subscribing for new equity, acquiring assets, or assuming debts.

Article 41 These Guidelines shall apply where a commercial bank grants a loan to an onshore acquiring enterprise that has already obtained control rights of the target enterprise and intends to maintain its control rights over the target enterprise, for acquiring or subscribing for the equity of such target enterprise.

Interpretation: The Official Measures for M&A Loans introduces "equity participation M&A Loans" and distinguishes it from "controlling M&A Loans" as follows:

Controlling M&A Loans

- The acquirer under controlling M&A Loans may be "a single entity" or "multiple acquiring enterprises acting in concert";

- For acquirers who have already obtained control of the target enterprise, the M&A Loan applied for the purpose of acquiring or subscribing for equity of the target enterprise in order to "enhance its control rights" ("Enhancing Controlling M&A Loans"), is also included within the scope of controlling M&A Loans. This change addresses the practical needs of some controlling enterprises to further increase their shareholding and aligns with recent market practice

- Compared to the Draft Measures for M&A Loans, the Official Measures for M&A Loans imposes additional restrictive conditions: (1) under Enhancing Controlling M&A Loans, the equity ratio in the target enterprise acquired in a single transaction shall not be less than 5%; and (2) the acquisition of no less than 5% equity in a single transaction shall be carried out by a "single" acquirer, but not by "multiple acquiring enterprises acting in concert".
Equity Participation M&A Loans

- Banks are permitted to grant equity participation M&A Loans to support equity participation transactions where the acquirer will not get control right as a result of the transaction, provided that equity ratio acquired in a single transaction is not less than 20%; but if the acquirer has already held 20% or more of the equity, subsequent single transactions to increase shareholding shall not be less than 5%;

- Unlike controlling M&A Loans, equity participation M&A Loans are only permitted to be implemented by a single acquirer, but not multiple acquirers/consortia;

- The calculation of equity ratio strictly follows the principle of "shareholding of a single acquirer" and shall exclude the shareholdings of parties acting in concert or affiliates. Multiple equity acquisition transactions shall each meet the minimum equity ratio requirement for a single transaction, and cannot be consolidated to accumulate the already held equity ratio.

It is noteworthy that NFRA Shanghai branch issued the Pilot Work Plan for Prudently Relaxing Restrictions on Non-Resident M&A Loans in the Lingang Special Area (the "Lingang M&A Loan Policy", 《在临港新片区审慎放宽非居民并购贷款限制试点工作方案》) on 24 September 2024, which allows eligible banks that have established branches in the Lingang Special Area and conduct business through such branches, to operate non-resident M&A Loans businesses. Such loans may be used to support strategic equity transactions aimed at acquiring partial equity of a target enterprise for strategic investment purposes rather than financial investment purposes. Such strategic equity transactions shall simultaneously satisfy the following conditions: (1) based on horizontal or vertical M&A strategic intent, the acquirer and the target enterprise shall have industrial relevance; (2) the acquirer shall have significant influence over the target enterprise, or be able to jointly control the target enterprise with other parties; and (3) in principle, the cumulative equity acquired in the target enterprise shall not be less than 20%.

IV. Strengthening the Qualification Requirements for Banks

The Official Measures for M&A Loans	The Draft Measures for M&A Loans	The 2015 Guidelines
Same as the Draft Measures for M&A Loans	Article 5 To commence M&A Loan business, a commercial bank with legal person status shall meet the following conditions: (1) be in sound condition with well-established corporate governance; (2) have a professional team engaged in due diligence and risk assessment of M&A Loans; (3) have a sound regulatory rating in the previous year, and the major regulatory indicators shall meet the regulatory requirements; (4) As of the end of the preceding year, have adjusted consolidated on- and off-balance sheet assets of no less than RMB 50 billion; for conducting equity participation M&A Loan business, such adjusted consolidated on- and off-balance sheet assets as of the end of the previous year shall be no less than RMB 100 billion. Prior to commencing M&A Loan business, the commercial bank shall develop the corresponding business process and internal control system, and file them with NFRA or its local branches.	Article 5 To commence M&A Loan business, a commercial bank with legal person status shall meet the following conditions: (1) have a sound risk management and an effective internal control mechanism; (2) have a capital adequacy ratio of not less than 10%; (3) Other regulatory indicators shall meet the regulatory requirements; (4) have a professional team engaged in due diligence and risk assessment of M&A Loans. Prior to commencing M&A Loan business, the commercial bank shall develop the corresponding M&A Loan business process and internal control system, and report the same to the regulatory authorities. After commencing M&A Loan business, if a commercial bank fails to continuously satisfy any of the above conditions, it shall stop conducting new M&A Loan businesses.
Same as the Draft Measures for M&A Loans	Paragraph 2, Article 9 The responsible person of the professional team referred to in the preceding paragraph shall have more than three (3) years of experience in M&A business, and the team members shall include but not be limited to M&A experts, credit experts, industry experts, legal experts and financial experts. The responsible person of the professional team for equity participation M&A Loans shall have more than five (5) years of experience in M&A business.	Paragraph 2, Article 24 The responsible person of the professional team referred to in the preceding paragraph shall have more than three (3) years of experience in M&A business, and the team members shall include but not be limited to M&A experts, credit experts, industry experts, legal experts and financial experts.

The Official Measures for M&A Loans

The Draft Measures for M&A Loans

The 2015 Guidelines

Same as the Draft Measures for M&A Loans

Article 5 To commence M&A Loan business, a commercial bank with legal person status shall meet the following conditions:

(1) be in sound condition with well-established corporate governance;

(2) have a professional team engaged in due diligence and risk assessment of M&A Loans;

(3) have a sound regulatory rating in the previous year, and the major regulatory indicators shall meet the regulatory requirements;

(4) As of the end of the preceding year, have adjusted consolidated on- and off-balance sheet assets of no less than RMB 50 billion; for conducting equity participation M&A Loan business, such adjusted consolidated on- and off-balance sheet assets as of the end of the previous year shall be no less than RMB 100 billion.

Prior to commencing M&A Loan business, the commercial bank shall develop the corresponding business process and internal control system, and file them with NFRA or its local branches.

Article 5 To commence M&A Loan business, a commercial bank with legal person status shall meet the following conditions:

(1) have a sound risk management and an effective internal control mechanism;

(2) have a capital adequacy ratio of not less than 10%;

(3) Other regulatory indicators shall meet the regulatory requirements;

(4) have a professional team engaged in due diligence and risk assessment of M&A Loans.

Prior to commencing M&A Loan business, the commercial bank shall develop the corresponding M&A Loan business process and internal control system, and report the same to the regulatory authorities. After commencing M&A Loan business, if a commercial bank fails to continuously satisfy any of the above conditions, it shall stop conducting new M&A Loan businesses.

Same as the Draft Measures for M&A Loans

Paragraph 2, Article 9 The responsible person of the professional team referred to in the preceding paragraph shall have more than three (3) years of experience in M&A business, and the team members shall include but not be limited to M&A experts, credit experts, industry experts, legal experts and financial experts. The responsible person of the professional team for equity participation M&A Loans shall have more than five (5) years of experience in M&A business.

Paragraph 2, Article 24 The responsible person of the professional team referred to in the preceding paragraph shall have more than three (3) years of experience in M&A business, and the team members shall include but not be limited to M&A experts, credit experts, industry experts, legal experts and financial experts.

Interpretation:

Minimum asset threshold: Paragraph 4 of Article 5 of the Official Measures for M&A Loans, for the first time, sets a hard asset threshold for banks engaging in M&A Loan business i.e., as of the end of the preceding year, a commercial bank with legal person status shall have adjusted consolidated on- and off-balance sheet assets of no less than RMB 50 billion if only engaging in controlling M&A Loan business, or no less than RMB 100 billion if engaging in equity participation M&A Loan business.

Article 32 of the Official Measures for M&A Loans provides that branches of foreign banks shall implement these Measure by reference. However, it remains to be clarified by NFRA whether the branches of foreign banks may include the assets of their parent banks in the calculation to satisfy such requirement.
Regulatory rating: Paragraph 3 of Article 5 of the Official Measures for M&A Loans newly introduces the requirement of sound regulatory rating. However, at present, there is no specific standard for what constitutes a "sound regulatory rating" and local branches of the NFRA may have the discretion in such regard at that time.
Professional experience: Article 9 of the Official Measures for M&A Loans newly requires that, for a bank conducting equity participation M&A Loan business, the responsible person of the professional team shall have more than five (5) years of experience in M&A business.

V. Optimization of Loan Conditions: higher loan ratios and longer loan tenors

The Official Measures for M&A Loans	The Draft Measures for M&A Loans	The 2015 Guidelines
Same as the Draft Measures for M&A Loans	Paragraph 1, Article 24 Commercial banks shall, comprehensively consider the risks of both the M&A transaction and the M&A Loan, prudently determine the proportion of the M&A loan to the transaction consideration, ensure that M&A funding includes a reasonable proportion of equity capital, and prevent the risks associated with highly leveraged M&A financing. Paragraph 2, Article 24 The proportion of controlling M&A Loan to the M&A transaction consideration shall not exceed 70%, and the proportion of equity capital to the M&A transaction consideration shall not be less than 30%. Paragraph 3, Article 24 The proportion of equity participation M&A Loan to the M&A transaction consideration shall not exceed 60%, and the proportion of equity capital to the M&A transaction consideration shall not be less than 40%.	Paragraph 2, Article 14 Commercial banks shall comprehensively consider the aforesaid risk factors, and, based on the operating and financial conditions of the parties to transactions, as well as the M&A financing method and amount, and other circumstance, reasonably assess the source of repayment of the M&A Loan and prudently determine the financial leverage ratio of the M&A project supported by such M&A Loan , ensure that the sources of M&A funding includes a reasonable proportion of equity capital, and prevent the risks caused by the highly leveraged M&A financing. Article 21 The proportion of the M&A Loan to the M&A transaction consideration shall not exceed 60%.
Same as the Draft Measures for M&A Loans	Article 25 The tenor of a controlling M&A Loan shall in principle, not exceed ten (10) years, and the tenor of an equity participation M&A Loan shall in principle, not exceed seven (7) years.	Article 22 The tenor of an M&A Loan shall generally not exceed seven (7) years.

The Official Measures for M&A Loans

The Draft Measures for M&A Loans

The 2015 Guidelines

Same as the Draft Measures for M&A Loans

Paragraph 1, Article 24 Commercial banks shall, comprehensively consider the risks of both the M&A transaction and the M&A Loan, prudently determine the proportion of the M&A loan to the transaction consideration, ensure that M&A funding includes a reasonable proportion of equity capital, and prevent the risks associated with highly leveraged M&A financing.

Paragraph 2, Article 24 The proportion of controlling M&A Loan to the M&A transaction consideration shall not exceed 70%, and the proportion of equity capital to the M&A transaction consideration shall not be less than 30%.

Paragraph 3, Article 24 The proportion of equity participation M&A Loan to the M&A transaction consideration shall not exceed 60%, and the proportion of equity capital to the M&A transaction consideration shall not be less than 40%.

Paragraph 2, Article 14 Commercial banks shall comprehensively consider the aforesaid risk factors, and, based on the operating and financial conditions of the parties to transactions, as well as the M&A financing method and amount, and other circumstance, reasonably assess the source of repayment of the M&A Loan and prudently determine the financial leverage ratio of the M&A project supported by such M&A Loan , ensure that the sources of M&A funding includes a reasonable proportion of equity capital, and prevent the risks caused by the highly leveraged M&A financing.

Article 21 The proportion of the M&A Loan to the M&A transaction consideration shall not exceed 60%.

Same as the Draft Measures for M&A Loans

Article 25 The tenor of a controlling M&A Loan shall in principle, not exceed ten (10) years, and the tenor of an equity participation M&A Loan shall in principle, not exceed seven (7) years.

Article 22 The tenor of an M&A Loan shall generally not exceed seven (7) years.

Interpretation:

Changes in major loan conditions:

	The Official Measures for M&A Loans	The 2015 Guidelines
Proportion of M&A Loan to the M&A Transaction Consideration	Controlling: ≤ 70% Equity participation: ≤60%	≤ 60%
Tenor	Controlling: ≤ ten (10) years Equity participation: ≤ seven (7) years	≤ seven (7) years
Proportion of equity capital	Controlling: ≥ 30% Equity participation: ≥ 40%	Reasonable proportion

Interpretation:

Pilot policies: On 5 March 2025, a responsible official of the relevant department of NFRA, in response to the Q&A on pilot program for M&A Loans for technology enterprises^[2], pointed out that for "controlling" M&A, the pilot program relaxes the cap on the ratio of M&A Loans to the transaction value from "not exceeding 60%" to "not exceeding 80%", and extends the loan tenor from "generally not exceeding seven (7) years" to "generally not exceeding ten (10) years". In addition, the Lingang M&A Loan Policy explicitly permits qualified banks that have established branches in the Lingang Special area and conducted business through such branches to carry out pilot non-resident M&A Loan business, raising the proportion of loans to the M&A transaction consideration to 80% and extending the loan tenor to ten (10) years. In accordance with the explanation provided by the responsible official of the relevant department of NFRA in response to the Q&A on the Official Measures for M&A Loans^[3], after the implementation of the Official Measures for M&A Loans, the aforementioned pilot policies may continue to apply to the relevant enterprises.
Scope of equity capital: The term "equity capital" mentioned in Articles 24 and 27 of the Official Measures for M&A Loans has not been clearly defined. However, based on the funding source requirements imposed by pilot banks on borrowers in the pilot program for M&A Loans for technology enterprises launched in March 2025 - the borrower's own funds are required to account for no less than 20% of the M&A transaction consideration, and the sources of such funds shall be legal and compliant, not including debt-based funds or other financing instruments that violate regulatory provisions, nor funds that are "equity in form but debt in substance"(名股实债). We understand that "equity capital" stipulated in the Official Measures for M&A Loans shall refer to the acquirer's own funds, typically corresponding to total owner's equity in the financial statements, excluding debt-based funds or proceeds from debt financing instruments, or funds that are "equity in form but debt in substance".

In addition, we believe that the requirements for equity funds in the Official Measures for M&A Loans will not affect the common forms of equity issuance for M&A transactions (such as share roll over (股份上翻), share exchange(换股)) under the 2015 Guidelines in market practice, because the nature of such transactions can be understood as the acquirer using the consideration for issuing or transferring the shares to acquire the target, and from the perspective of the acquirer, the funds received by the acquirer from issuing or transferring the shares belong to self-owned capital/equity funds.
Calculation of M&A transaction consideration: Neither the Official Measures for M&A Loans nor the 2015 Guidelines specify how the M&A transaction consideration should be calculated. We understand that the M&A transaction consideration shall cover all the consideration paid for the purpose of the M&A transaction (including the consideration in the form of assumption of debt). Where the acquirer carries out the M&A through a combination of assumption of debt and equity transfer, the M&A transaction consideration shall be determined as the total transaction price before the assumption of such debt. Banks shall comply with the requirements on equity capital and M&A Loan-to-transaction consideration ratios based on such calculation basis.

VI. Entrusted Payment

The Official Measures for M&A Loans	The Draft Measures for M&A Loans	The 2015 Guidelines
Article 26 Before disbursing the loan, commercial banks shall verify that the borrower has satisfied the conditions to drawdown stipulated in the contract. The conditions to drawdown shall at least include that other M&A transaction funds apart from the M&A Loan, have been fully paid in place in accordance with the agreed payment schedule, and that the compliance conditions for the M&A transaction have been satisfied, among other requirements. Where a borrower applies for an M&A Loan to pay the M&A transaction consideration, the loan shall, in principle, be disbursed through entrusted payment; where entrusted payment is genuinely not feasible, necessary measures shall be taken to ensure that the use of funds is lawful and compliant.	Article 26 Before disbursing the loan, commercial banks shall verify that the borrower has satisfied the conditions to drawdown stipulated in the contract. Where a borrower applies for an M&A Loan to pay the M&A transaction consideration, the loan shall, be disbursed through entrusted payment. The conditions to drawdown shall at least include that other M&A transaction funds apart from the M&A Loan, have been fully paid in place, and that the compliance conditions for the M&A transaction have been satisfied, among other requirements.	Paragraph 1 Article 33 A commercial bank shall specify in a loan contract the conditions to drawdown and the terms concerning payment and utilization of loans. The conditions to drawdown shall at least include that self-raised funds of the acquirer have been fully paid in place, and that the compliance conditions for the M&A have been satisfied, among other requirements.

The Official Measures for M&A Loans

The Draft Measures for M&A Loans

The 2015 Guidelines

Article 26 Before disbursing the loan, commercial banks shall verify that the borrower has satisfied the conditions to drawdown stipulated in the contract. The conditions to drawdown shall at least include that other M&A transaction funds apart from the M&A Loan, have been fully paid in place in accordance with the agreed payment schedule, and that the compliance conditions for the M&A transaction have been satisfied, among other requirements.

Where a borrower applies for an M&A Loan to pay the M&A transaction consideration, the loan shall, in principle, be disbursed through entrusted payment; where entrusted payment is genuinely not feasible, necessary measures shall be taken to ensure that the use of funds is lawful and compliant.

Article 26 Before disbursing the loan, commercial banks shall verify that the borrower has satisfied the conditions to drawdown stipulated in the contract. Where a borrower applies for an M&A Loan to pay the M&A transaction consideration, the loan shall, be disbursed through entrusted payment.

The conditions to drawdown shall at least include that other M&A transaction funds apart from the M&A Loan, have been fully paid in place, and that the compliance conditions for the M&A transaction have been satisfied, among other requirements.

Paragraph 1 Article 33 A commercial bank shall specify in a loan contract the conditions to drawdown and the terms concerning payment and utilization of loans. The conditions to drawdown shall at least include that self-raised funds of the acquirer have been fully paid in place, and that the compliance conditions for the M&A have been satisfied, among other requirements.

Interpretation:

Conditions precedent to drawdown: Based on the Draft Measures for M&A Loans, the Official Measures for M&A Loans clarifies that for conditions to drawdown, funds for the M&A transaction are only required to be fully paid in place in accordance with the agreed payment schedule, which means that when a bank disburses an M&A Loan, it is not required that other funds for the M&A transaction have already been fully paid in place; instead, it is sufficient for the corresponding portion of funds to be in place according to the payment schedule agreed between both parties to the M&A transaction.
Payment management: The Draft Measures for M&A Loans explicitly required that where a borrower applies for an M&A Loan to pay the M&A transaction consideration, the entrusted payment method shall be adopted. The Official Measures for M&A Loans revises this requirement to provide that the entrusted payment method shall, in principle, be adopted, leaving flexibility for special circumstances where entrusted payment is not feasible, while requiring banks to take necessary measures to ensure the legality and compliance of the funds. When entrusted payment is not adopted, the bank shall assume higher compliance responsibility and prove that the loan funds have not been misappropriated through strengthened internal controls, verification of fund flows and supporting documentation.

VII. Clarifying Restrictions on Rollover of M&A Loans

The Official Measures for M&A Loans	The Draft Measures for M&A Loans	The 2015 Guidelines
Article 27 Where an M&A Loan is used to roll over the M&A transaction consideration that prepaid by the acquirer, it shall comply with the requirements under these Measures regarding, among others, the minimum proportion of equity capital, and shall not be used to roll over the M&A Loan already obtained. The interval between the first drawdown date of the loan and the completion of full payment of the M&A transaction consideration to be rolled over shall not be more than one (1) year.	Article 27 An M&A Loan may be used to roll over the M&A transaction consideration that has been prepaid by the acquirer, but shall not be used to roll over the M&A Loan already acquired. The interval between the loan processing date and the completion of payment of the M&A transaction consideration to be rolled over shall not be more than one (1) year.	N/A

Interpretation:

Replacing timing: The Draft Measures for M&A Loans require that the interval between the loan processing date and the completion of payment of the M&A transaction consideration to be replaced shall not exceed one (1) year. However, the exact timing for "loan processing date" and "completion of payment of the M&A transaction consideration" are not specified. The Official Measures for M&A Loans further clarify that the starting point of the interval shall be the first drawdown date of the M&A Loan, and the ending point shall be the completion of full payment of the M&A transaction consideration. Where the M&A transaction consideration is paid in stages, the ending point shall be determined by the date on which the final installment of the M&A transaction consideration is paid.
M&A transaction consideration to be replaced: The Official Measures for M&A Loans provide that M&A Loans shall not be used to replace M&A Loans already disbursed, but may be used to replace M&A transaction consideration prepaid by the acquirer. In light of market practice, such prepaid M&A transaction consideration to be replaced may be funded by equity capital or debt-based funds such as bridge loans. Compared to the Draft Measures for M&A Loans, the Official Measures for M&A Loans further clarify that M&A Loans used to replace self-funded M&A transaction consideration are likewise subject to all regulatory requirements, including the minimum proportion of equity capital.

Previously, there were market discussions suggesting that, so long as the aggregate tenor of M&A Loans did not exceed the maximum permitted term (seven (7) years under the 2015 Guidelines), banks could grant M&A Loans to replace M&A Loans already granted by other banks. However, after the Official Measures for M&A Loans take effect, such replacement structure is no longer permissible, thereby eliminating the practice of indefinitely extending loan tenors through "borrowing new loans to repay old ones".
Source of funds for repayment of M&A Loans: Although Article 27 of the Official Measures for M&A Loans only restricts the use of M&A Loans to replace or repay other M&A Loans, banks are also subject to stringent restrictions on loan purposes, for example, working capital loans shall not be used for equity investment, and fixed asset loans shall be used for the construction, purchase, renovation and other activities of fixed assets during the borrower's business operation. Accordingly, in replacement scenarios, banks are required to conduct a look-through review of the original purpose of the loan being replaced, so as to avoid using M&A Loans to indirectly circumvent regulatory restrictions applicable to other types of loans. Therefore, in practice, banks usually conduct replacement transactions only within the same loan category and adopt a highly cautious approach to cross-category loan replacements. For M&A Loans, banks generally require that such repayment shall be made only with non-bank loan funds.

VIII. New Concentration Restrictions Imposed on Equity Participation M&A Loans

The Official Measures for M&A Loans	The Draft Measures for M&A Loans	The 2015 Guidelines
Article 29 The balance of M&A Loans granted by a commercial bank to a single borrower shall not exceed 2.5% of the commercial bank's net tier 1 capital for the same period. The balance of all M&A Loans granted by a commercial bank shall not exceed 50% of the commercial bank's net tier 1 capital for the same period. The balance of equity participation M&A Loans shall not exceed 30% of the balance of all M&A Loans of a bank.	Article 29 The balance of all M&A Loans granted by a commercial bank shall not exceed 50% of the commercial bank's net tier 1 capital for the same period. The balance of equity participation M&A Loans shall not exceed 30% of the balance of all M&A Loans of a bank. Paragraph 2, Article 30 The balance of M&A Loans granted by a commercial bank to a single borrower shall not exceed 5% of the commercial bank's net tier 1 capital for the same period.	Article 18 The balance of all M&A Loans granted by a commercial bank shall not exceed 50% of the commercial bank's net tier 1 capital for the same period. Article 20 The balance of M&A Loans granted by a commercial bank to a single borrower shall not exceed 5% of the commercial bank's net tier 1 capital for the same period.

The Official Measures for M&A Loans

The Draft Measures for M&A Loans

The 2015 Guidelines

Article 29 The balance of M&A Loans granted by a commercial bank to a single borrower shall not exceed 2.5% of the commercial bank's net tier 1 capital for the same period.

The balance of all M&A Loans granted by a commercial bank shall not exceed 50% of the commercial bank's net tier 1 capital for the same period.

The balance of equity participation M&A Loans shall not exceed 30% of the balance of all M&A Loans of a bank.

Article 29 The balance of all M&A Loans granted by a commercial bank shall not exceed 50% of the commercial bank's net tier 1 capital for the same period.

The balance of equity participation M&A Loans shall not exceed 30% of the balance of all M&A Loans of a bank.

Paragraph 2, Article 30 The balance of M&A Loans granted by a commercial bank to a single borrower shall not exceed 5% of the commercial bank's net tier 1 capital for the same period.

Article 18 The balance of all M&A Loans granted by a commercial bank shall not exceed 50% of the commercial bank's net tier 1 capital for the same period.

Article 20 The balance of M&A Loans granted by a commercial bank to a single borrower shall not exceed 5% of the commercial bank's net tier 1 capital for the same period.

Interpretation: The Official Measures for M&A Loans continue to adopt the regulatory red line on the overall business concentration established in the 2015 Guidelines, expressly providing that the balance of all M&A Loans granted by a commercial bank shall not exceed 50% of the commercial bank's net tier 1 capital for the same period. However, compared to the 2015 Guidelines and the Draft Measures for M&A Loans, the single client concentration requirement has been adjusted and tightened, being reduced from 5% to 2.5%. In addition, a new concentration management requirement for equity participation M&A Loans has been introduced on the basis of the 2015 Guidelines, which provides that the balance of equity participation M&A Loans shall not exceed 30% of the balance of all M&A Loans of a bank.

IX. Strengthening Post-loan Management

The Official Measures for M&A Loans	The Draft Measures for M&A Loans	The 2015 Guidelines
Article 28 Commercial banks shall strengthen the post-disbursement management of loan funds, timely track the implementation status of M&A transaction, pay close attention to the performance of key terms under the loan contract, monitor the risk factors affecting the borrower's solvency, and strictly prevent the misappropriation of the borrower's funds and affiliated enterprises from extracting loan funds through fraudulent M&A transactions, and other similar acts. Upon discovering any irregularities, the bank shall timely take measures such as requiring additional security, adjusting the loan disbursement conditions or repayment schedule, freezing or terminating credit facilities, or accelerating loan repayment.	Article 28 Commercial banks shall strengthen the post-disbursement management of loan funds, timely track the implementation status of M&A transaction, pay close attention to the performance of key terms under the loan contract, monitor the risk factors affecting the borrower's solvency, and strictly prevent the misappropriation of the borrower's funds and affiliated enterprises from extracting loan funds through fraudulent M&A transactions, and other similar acts. Upon discovering any irregularities, the bank shall timely take measures such as accelerating loan repayment, requiring additional security, adjusting the loan disbursement conditions or repayment schedule, and freezing or terminating the credit facilities.	Paragraph 2, Article 33 Commercial banks shall, in accordance with the loan contract, strengthen the management of drawdown and payment of loan funds and monitor the flow of funds, prevent affiliated enterprises from extracting loan funds through fraudulent M&A transactions, and ensure that the loan funds will not be misappropriated. Paragraph 1, Article 35 Commercial banks shall, during the term of the loan, strengthen the post-loan inspection, timely track the implementation status of M&A transaction, regularly evaluate the predictability and stability of the future cash flow of both parties to the M&A transaction, and regularly evaluate whether the repayment plan of the borrower matches the repayment source. Where any irregularities arise in the M&A transaction or with either party to the M&A transaction, commercial banks shall timely take effective measures to ensure the safety of the loan. Article 36 Commercial banks shall, during the term of the loan, pay close attention to the performance of key terms under the loan contract.

The Official Measures for M&A Loans

The Draft Measures for M&A Loans

The 2015 Guidelines

Article 28 Commercial banks shall strengthen the post-disbursement management of loan funds, timely track the implementation status of M&A transaction, pay close attention to the performance of key terms under the loan contract, monitor the risk factors affecting the borrower's solvency, and strictly prevent the misappropriation of the borrower's funds and affiliated enterprises from extracting loan funds through fraudulent M&A transactions, and other similar acts. Upon discovering any irregularities, the bank shall timely take measures such as requiring additional security, adjusting the loan disbursement conditions or repayment schedule, freezing or terminating credit facilities, or accelerating loan repayment.

Article 28 Commercial banks shall strengthen the post-disbursement management of loan funds, timely track the implementation status of M&A transaction, pay close attention to the performance of key terms under the loan contract, monitor the risk factors affecting the borrower's solvency, and strictly prevent the misappropriation of the borrower's funds and affiliated enterprises from extracting loan funds through fraudulent M&A transactions, and other similar acts. Upon discovering any irregularities, the bank shall timely take measures such as accelerating loan repayment, requiring additional security, adjusting the loan disbursement conditions or repayment schedule, and freezing or terminating the credit facilities.

Paragraph 2, Article 33 Commercial banks shall, in accordance with the loan contract, strengthen the management of drawdown and payment of loan funds and monitor the flow of funds, prevent affiliated enterprises from extracting loan funds through fraudulent M&A transactions, and ensure that the loan funds will not be misappropriated.

Paragraph 1, Article 35 Commercial banks shall, during the term of the loan, strengthen the post-loan inspection, timely track the implementation status of M&A transaction, regularly evaluate the predictability and stability of the future cash flow of both parties to the M&A transaction, and regularly evaluate whether the repayment plan of the borrower matches the repayment source. Where any irregularities arise in the M&A transaction or with either party to the M&A transaction, commercial banks shall timely take effective measures to ensure the safety of the loan.

Article 36 Commercial banks shall, during the term of the loan, pay close attention to the performance of key terms under the loan contract.

Interpretation: Compared to the 2015 Guidelines, Article 28 of the Official Measures for M&A Loans requires banks to strengthen post-loan management over borrowers, and further specifies the measures that banks should take to safeguard loan security where risks or irregularities are identified, including requiring additional security, adjusting the loan disbursement conditions or repayment schedule, freezing or terminating credit facilities, accelerating loan repayment, and other measures. Banks may update their M&A Loan contracts as the case may be, to ensure that banks are entitled to take the aforesaid measures for post-loan management purpose.

Transition Period Arrangements

According to the explanation of Q&A^[4] given by the responsible person of the relevant department of NFRA regarding the Official Measures for M&A Loans, (1) commercial banks that have already conducted M&A Loan business before the effectiveness of the new measures and still meet the business qualification requirements stipulated in Article 5 of the new measures after their promulgation, may continue their business normally without refiling; (2) commercial banks that have conducted M&A Loan business before the promulgation of the new measures but do not meet the business qualification requirements under the new measures, shall not engage in M&A loan business after the existing loans naturally run off; (3) for M&A loans where loan contracts have already been signed before the promulgation of the new Measures, banks may perform in accordance with the terms of the contract, and such contracts may be naturally settled upon expiration. If any core terms of the loan contracts need to be amended, we understand banks are required to go through the review and approval procedures according to the Official Measures for M&A Loans to ensure that the amended business complies with the new measures.

Important Announcement

This Legal Commentary has been prepared for clients and professional associates of Han Kun Law Offices. Whilst every effort has been made to ensure accuracy, no responsibility can be accepted for errors and omissions, however caused. The information contained in this publication should not be relied on as legal advice and should not be regarded as a substitute for detailed advice in individual cases.

If you have any questions regarding this publication, please contact:

Ting ZHENG

Tel: +86 21 6080 0203

Email: ting.zheng@hankunlaw.com

[1]https://www.nfra.gov.cn/cn/view/pages/ItemDetail.html?docId=2981&itemId=915&generaltype=0.

[2]https://www.nfra.gov.cn/cn/view/pages/ItemDetail.html?docId=1200294&itemId=917&generaltype=0.

[3] https://www.nfra.gov.cn/cn/view/pages/ItemDetail.html?docId=1240856&itemId=915&generaltype=0.

[4]https://www.nfra.gov.cn/cn/view/pages/ItemDetail.html?docId=1240856&itemId=915&generaltype=0.

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