LDK Solar Co., Ltd. - Asia Europe Clean Energy (Solar) Advisory Co ...

Pursuant to the above-mentioned administrative rules, foreign-invested enterprises, such as Jiangxi LDK
Solar, may buy, sell and/or remit foreign currencies for current-account transactions at banks in China with
authority to conduct foreign exchange business by complying with certain procedural requirements, such as
presentment of valid commercial documents. As disclosed, for most capital-account transactions, approval
from the SAFE is a pre-condition. Capital investments by foreign-invested enterprises outside China are also
subject to limitations and requirements in China, such as prior approvals from the PRC Ministry of
Commerce, the SAFE and the PRC National Development and Reform Commission, or the NDRC.
Dividend Distribution
The principal regulations governing distribution of dividends by wholly foreign owned enterprises, such as
Jiangxi LDK Solar, include:
‚ Corporation Law of 1993, as amended;
‚ Wholly Foreign-Owned Enterprise Law of 1986, as amended; and
‚ Wholly Foreign-Owned Enterprise Law Implementation Rules of 1990, as amended.
Under the current regulatory regime in China, foreign-invested enterprises in China, including Jiangxi
LDK Solar, may pay dividends only out of their accumulated profits, if any, determined in accordance with
the PRC accounting standards and regulations. After making up for any deficit in prior years pursuant to the
PRC laws, a wholly foreign-owned enterprise in China, such as Jiangxi LDK Solar, is required to set aside at
least 10% of their after-tax profit calculated in accordance with the PRC accounting standards and regulations
each year as its general reserves until the cumulative amount of such reserves reaches 50% of its registered
capital. These reserves are not distributable as cash dividends. The board of directors of a wholly foreignowned
enterprise has the discretion to allocate a portion of its after-tax profits to its staff welfare and bonus
funds, which is likewise not distributable to its equity owners except in the event of a liquidation of the foreigninvested
enterprise.
Regulation of Overseas Investments and Listings
The SAFE issued a public notice in October 2005, or the SAFE notice, requiring PRC residents,
including both legal persons and natural persons, to register with the relevant local SAFE branch before
establishing or gaining control over any company outside China, referred to in the SAFE notice as an
""offshore special purpose company,'' for the purpose of acquiring any assets of or equity interest in PRC
companies and raising funds from overseas. In addition, any PRC resident that is a shareholder of an offshore
special purpose company is required to amend its SAFE registration with the local SAFE branch, with respect
to that offshore special purpose company in connection with any increase or decrease of capital, transfer of
shares, merger, division, equity or debt investment or creation of any security interest. If any PRC shareholder
of any offshore special purpose company fails to make the required SAFE registration and amendment, the
PRC subsidiaries of that offshore special purpose company may be prohibited from distributing their profits
and the proceeds from any reduction in capital, share transfer or liquidation to the offshore special purpose
company. Moreover, failure to comply with the SAFE registration and amendment requirements described
above could result in liability under PRC laws for evasion of applicable foreign exchange restrictions.
The NDRC promulgated a rule in October 2004, or the NDRC rule, which requires NDRC approval for
overseas investment made by PRC-incorporated entities. The NDRC rule also provides that approval
procedures for overseas investment by PRC individuals will be based on the NDRC rule.
On August 8, 2006, six PRC regulatory agencies, including the Ministry of Commerce, the State Assets
Supervision and Administration Commission, the State Administration for Taxation, the State Administration
for Industry and Commerce, the CSRC, and the SAFE, jointly adopted the Regulation on Mergers and
Acquisitions of Domestic Enterprises by Foreign Investors, or the new M&A rule, which became effective on
September 8, 2006. This regulation includes provisions that purport to require special purpose companies
formed for purposes of overseas listing of equity interest in PRC companies and controlled directly or
indirectly by PRC companies or individuals to obtain the approval of the CSRC prior to the listing and trading
of their securities on any overseas stock exchange.
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