China: New official guidance for foreign debt filings
In 2015, the National Development and Reform Commission (NDRC) issued the Circular on Promoting the Reform of the Filing and Registration Regime for Issuance of Foreign Debt by Enterprises, under which, both issuance of bonds and borrowing of mid-and-long term commercial loans overseas by PRC enterprises and/or their offshore subsidiaries and branches (collectively, the debtors) are subject to a prior filing and registration with NDRC (foreign debt filing). Over the past five years, the debtors as applicants encountered a lot of issues with regard to the foreign debt filing due to the ambiguity in definitions, scope and standards thereof. As a result, the NDRC issued detailed application guidance including 25 FAQs and respective answers in February 2020, aiming to make these issues clear.
The new official guidance represents NDRC's prevailing regulatory views and may be regarded as practical guidance on the foreign debt filing. Some of the major changes are as follows:
The spectrum of debtors has been expanded. NDRC confirms that the foreign debts to be issued by the offshore entities (e.g. entities incorporated in the Cayman Islands or Hong Kong SAR), which are controlled by a domestic individual under a red-chip structure relating to PRC entities, shall be subject to the foreign debt filing.
Two kinds of loan transactions are included. Despite several uncertainties before, NDRC clarifies that (i) a revolving loan with a loan period of more than one year and (ii) an intra-company loan with a term of more than one year by a domestic enterprise from its offshore shareholder shall be filed as well.
The filing procedures are clearer. For example, NDRC requires that the foreign debt filing shall be completed prior to the utilisation of the relevant facilities.
Although there are still some ambiguities surrounding the application process, the new official guidance is much clearer about how to prepare and submit application documents, and helps debtors completing foreign debt filings. Moreover, with the issuance of the new official guidance, an online application system for foreign debt filings is launched.
In addition to the new official guidance, the People's Bank of China and the State Administration of Foreign Exchange decided to raise the cross-border financing upper limit of PRC enterprises in February 2020. These recent optimisations reflect Chinese regulatory authorities' increasing willingness to utilise international financing channels for the financing of PRC enterprises. More positive changes and effects can be anticipated in Chinese foreign debt markets, and we expect that PRC enterprises will become more and more active in the international financing market in the near future.