(Yicai) Aug. 21 -- China has released a draft version of new regulations governing bank lending for mergers and acquisitions, extending their scope to include equity deals for the first time and easing key lending terms.

The draft regulations split M&As into two types: “control acquisitions” where the buyer takes a majority stake and “equity acquisitions” where the buyer takes a minority stake. Banks would be allowed to finance as much as 70 percent of the value of a takeover deal, along with loan terms extended to 10 years from seven, and up to 60 percent of an equity deal.

To qualify as an equity deal, a single transaction must acquire at least 20 percent of the target company’s equity in one go. For buyers that already own 20 percent, any single subsequent transaction must be no less than 5 percent.

The National Financial Regulatory Administration yesterday began a public consultation on the draft rules until Sept. 20.

Only banks with consolidated assets of at least CNY50 billion (USD7 billion) will be eligible to make control acquisition loans, and CNY100 billion (USD13.9 billion) for equity acquisition loans, per the new regulations.

In terms of risk management, a bank’s total exposure to M&A lending may not exceed 50 percent of its Tier-1 capital. Lending on equity deals may account for no more than 30 percent of that exposure. Exposure to any single borrower is capped at 5 percent.

In March, the NFRA announced it had launched a pilot program relaxing rules on M&A lending for technology companies in 18 cities, including raising the maximum loan-to-value ratio to 80 percent from 60 percent and the maximum loan term to 10 years from seven.

A total of 3,531 M&A deals were completed in China in the first half of the year, down 3.9 percent from a year earlier, with their value rising 1.9 percent to CNY798.3 billion (USD111.3 billion), according to data from Wind Information.

Editor: Futura Costaglione