A Study On The Legal Issues Of Mezzanine Financing In China

Issuing equity or bond are the most common ways of raising capital incapital markets. Each indicates different risk level and requires differentlevel of return. Investor and borrower will use various kind of investmentvehicles based on different risk profile and target. As the capital marketbecomes more and more complex, simple combination of debt and equitycannot meet the requirements of both investor and borrower. New types ofinstruments have been developed by investment banks to capture the needsof capital market. Mezzanine financing has thrived as one of the new typesof instruments which combine the feature of debt and equity.Mezzanine financing is firstly introduced into capital markets indeveloped countries. Borrowers from various industries have developedgreat demand for mezzanine financing as the result of its unique feature.Also, it is becoming more and more popular in China. However, the legalenvironment in China has not adapted to this new investment vehicle. Thisarticle tempts to give solutions for mezzanine financing under the existingframework of laws in China through typical terms analysis. It serves as areference for potential investors and borrowers to avoid legal risks duringtheir practice in mezzanine financing.