After a decade-long interval, the National Financial Regulatory Administration has issued the "Commercial Bank Merger and Acquisition Loan Management Measures (Draft for Comments)" (hereinafter referred to as the "Measures"), revising M&A loan policies.

Compared to the "Commercial Bank Merger and Acquisition Loan Risk Management Guidelines" (hereinafter referred to as the "Guidelines") implemented in 2015, the Measures have raised the upper limit of loan ratios for M&A loans, extended loan terms, and additionally introduced "equity participation-type M&A loans," broadening funding supply channels for the M&A market.

Industry analysts point out that the Measures are more flexible in supporting the real economy, particularly technological innovation, while being more prudent in risk prevention and control. Following these adjustments, the potential M&A loan client base and loan supply are expected to expand significantly, with technology, real estate, and advanced manufacturing sectors likely to benefit first.

**Lowering Financing Thresholds and Extending Loan Terms**

M&A loans refer to loans issued by commercial banks to domestic acquiring companies or their subsidiaries to pay for M&A transaction amounts (including transaction fees).

Industry experts analyze that the Measures represent a comprehensive revision of the Guidelines, aimed at meeting the demands of new stages of economic development, further activating the M&A market, optimizing resource allocation, while maintaining the bottom line of financial risk prevention.

Several key points merit attention in the Measures' content.

First, the scope of M&A loan applications has been broadened. Building on the controlling-type M&A transactions covered by the Guidelines, M&A loans are now categorized by purpose into controlling-type M&A loans and equity participation-type M&A loans.

"Equity participation-type M&A loans" refer to loans supporting a single acquirer's equity participation in target enterprises without achieving control, though the single acquisition of target enterprise equity must not be less than 20%. For single acquirers already holding 20% or more equity in target enterprises seeking to further increase shareholding ratios without achieving control, equity participation-type M&A loans may be applied for, with single transfer or subscription ratios not less than 5%.

Second, differentiated business qualification requirements have been established. For commercial banks conducting controlling-type and equity participation-type M&A loan businesses, differentiated asset scale requirements are set based on requirements for good regulatory ratings and compliance with major prudential regulatory indicators.

Banks offering M&A loan services must have consolidated on- and off-balance sheet assets of no less than RMB 50 billion at the end of the previous year, while those conducting equity participation-type M&A loan business must have no less than RMB 100 billion.

Third, loan conditions have been optimized. The upper limit of M&A loan ratios to M&A transaction amounts has been further increased, loan terms extended, better meeting enterprises' reasonable financing needs.

Specifically, the upper limit for controlling-type M&A loans as a proportion of M&A transaction amounts has been raised from 60% to 70%, requiring equity funding of no less than 30%. The upper limit for equity participation-type M&A loans is set at 60%, requiring equity funding of no less than 40%. Additionally, the maximum term for controlling-type M&A loans has been extended from 7 to 10 years, while equity participation-type M&A loans have 7-year terms.

Fourth, debt servicing capacity assessment has been emphasized. Banks should comprehensively consider M&A transaction-related risks while focusing on evaluating acquirers' debt servicing capacity, simultaneously monitoring post-M&A enterprise development prospects, synergistic effects, and operational benefits to assess multidimensional impacts on M&A loans.

Industry experts note that the Measures' addition of equity participation-type M&A loans means enterprises seeking strategic investment and business cooperation rather than complete control can also apply for M&A loans. Raising the upper limit of M&A loan ratios to transaction amounts and extending loan terms helps reduce acquirers' short-term funding pressure, encouraging more M&A transactions. The core changes in the Measures can be summarized as "one loosening, one tightening": more flexible support for the real economy, particularly technological innovation, while more prudent in risk prevention and control.

**Technology Companies May Benefit First**

Financial industry experts analyze that implementation of the Measures is expected to positively impact technological innovation, advanced manufacturing, real estate and urban renewal, green low-carbon industries, and cross-border investment sectors, with technology enterprises becoming among the biggest beneficiaries.

"Technology sector M&A typically requires substantial funding support. The increased loan ratios from the new policies will significantly reduce funding pressure on tech innovation enterprises, particularly for companies needing to integrate industry resources and acquire key technologies through M&A. Lower financing thresholds will accelerate industry consolidation and upgrading," experts believe.

For manufacturing industries undergoing transformation and upgrading, M&A and restructuring represent important pathways for industrial chain integration and technological advancement. The Measures extend maximum loan terms (reaching 10 years for controlling-type), which experts consider particularly beneficial for manufacturing's long-term investment returns, reducing enterprises' short-term repayment pressure while providing more adequate time for technology absorption and industrial chain optimization.

Regarding real estate, experts point out that new policies may promote acquisitions and restructuring of distressed enterprises by quality real estate companies. In practice, "local special bonds + bank M&A loans" supporting policy formats have emerged, which will accelerate industry consolidation. Simultaneously, adjustments to affordable housing re-lending policies create synergistic effects with M&A loan policies, promoting urban renewal and affordable housing construction.

Industry analysts also believe that by enhancing financing convenience, particularly through preferential policies for technology enterprises, the Measures directly serve modern industrial system construction, encouraging enterprises to integrate advanced technology, talent, and market resources through M&A, accelerating innovation-driven development and supporting industrial upgrading and new quality productive forces development.

It's noteworthy that regarding technology enterprise M&A loan policies, the financial regulator organized pilot programs in March this year to moderately relax technology enterprise M&A loan policies.

The pilot mentioned that for "controlling-type" M&A, loan ratios to enterprise M&A transaction amounts would be relaxed from "should not exceed 60%" to "should not exceed 80%," while loan terms would be extended from "generally not exceeding seven years" to "generally not exceeding ten years."

Regarding qualification requirements for pilot enterprises and commercial banks, the financial regulator noted that "pilot banks should have good operational conditions, sound corporate governance, major prudential regulatory indicators meeting regulatory requirements, and strong professional M&A loan services and risk control capabilities, including large commercial banks, joint-stock commercial banks, and city commercial banks." "Pilot technology enterprises should have strong research accumulation and innovation capabilities, significant technological transformation needs, broad prospects for scientific achievement transformation and marketization, and good credit records."

This approach is also reflected in the Measures' differentiated business qualification requirements, such as commercial bank asset scale requirements (RMB 50 billion, RMB 100 billion) and requirements for good bank regulatory ratings and compliance with major prudential regulatory indicators.

"M&A loan business requires relatively high risk prevention and control capabilities from banks. The current Measures have added equity participation-type M&A loans, further raising requirements for commercial banks' risk prevention and control capabilities. Each bank has its own credit culture, particularly for smaller banks whose team configurations, risk protection capabilities, and available resources struggle to meet the risk prevention and control requirements of equity participation-type M&A loan business. Therefore, under differentiated regulatory approaches and considering business risk factors, many smaller banks are excluded," industry researchers note.