/ 1 min read / Reed Smith Client Alerts

New guidelines introduced for foreign debts of Chinese enterprises

On 9 February 2023, the National Development and Reform Commission of the People’s Republic of China (the NDRC) published the frequently answered questions (the FAQs) on the guidelines for the examination and registration of medium- and long-term foreign debts owed by enterprises. Shortened from 75 to 65 answers, the FAQs explores and sheds light on several important provisions in the Administrative Measures for the Examination and Registration of Medium- and Long-term Foreign Debts of Enterprises (the Administrative Measures), which came into effect on 10 February 2023.

Authors

Vivian Ji

The FAQs clarify that an application for examination and registration must be submitted in advance to the NDRC in the following circumstances:

  1. Where a domestic Chinese enterprise (and any overseas subsidiary or branch under its control) borrows an offshore debt instrument that is denominated in the local currency or a foreign currency and has a term of more than one year for repayment of principal and interest, as agreed.
  2. Where a domestic enterprise (and any overseas enterprise or branch under its control) borrows a debt with a term of more than one year from a foreign enterprise (including an overseas shareholder or overseas subsidiary).
  3. Where a domestic enterprise (and any overseas enterprise or branch under its control) plans to borrow a revolving loan from a foreign bank with a term of less than one year and credit period of more than one year.
  4. Where a domestic financial institution transfers a non-performing loan to a foreign jurisdiction.

Furthermore, the FAQs set out the requirements applicable to red-chip enterprises when applying for foreign debts. For example, if an enterprise borrows foreign debts with a term of more than one year and the enterprise is the principal business entity, it must submit an application for examination and registration of the foreign debts. Whether an enterprise is a red-chip structure shall be determined based on its underlying assets, its principal business activities and any other factors that are central to its operations, together with the legal opinion of an independent law firm. In case of any uncertainty regarding the above, the NDRC may be contacted for clarification.

The FAQs set out certain practical considerations in the course of the examination and registration of foreign debts of enterprises, including:

  1. The applicant must be a domestic Chinese enterprise and must submit the application report, together with relevant documents, to the NDRC through the headquarters or head office of its domestic holding company.
  2. In the event that the term of the NDRC’s approval is only one year but the enterprise is applying for a medium- or long-term international business loan with a term of three years, the enterprise shall complete the first drawdown within the term of the Certificate of Examination and Registration of Foreign Debts Borrowed by Enterprises, and the loan contract shall take precedence in establishing the duration of the loan term.

Not only will the Administrative Measures have a positive impact in further standardising the borrowing of medium- and long-term foreign debts by domestic Chinese enterprises, it will also guarantee that the long-term development of foreign bond issues by domestic Chinese enterprises is stable and sustainable.

Client Alert 2023-044

Related Insights

Our insights