China Broadens M&A Loan Rules to Cover Minority Stakesa

The new framework would let banks fund buyers acquiring stakes of at least 20 per cent in target companies without taking control, a category that previously fell outside standard M&A loan policy. It also clarifies that if an investor already holds 20 per cent or more, additional borrowing can be used to lift the stake further as long as each step adds a meaningful increment. By codifying minority-stake financing, the regulator is trying to unlock deals that help firms recapitalise, bring in strategic partners, or ease shareholder transitions without triggering full takeovers.

For control transactions, banks would be allowed to finance a greater portion of the purchase price for longer, reflecting the cash-flow needs of post-merger integration. In the minority-stake lane, permissible loan-to-value and maturities are somewhat lower, aligning with the lesser control and different risk profile of these deals. The draft also ties eligibility to bank size and risk management, requiring larger balance sheets and stronger internal controls to participate, which is intended to prevent risk from migrating to less-capable lenders.

If adopted, the changes could widen China’s toolkit for cleaning up balance sheets, consolidating overcapacity in heavy industry, and channeling capital to advanced manufacturing and services. Minority-stake deals are often faster to execute and face fewer regulatory hurdles, allowing them to act as a bridge to deeper partnerships or eventual control transactions. The consultation window gives banks and corporates time to adjust pipelines; the larger test will be whether credit appetite and boardroom confidence are sufficient to translate policy flexibility into a sustained pickup in deal flow.