On 28 April 2013, SAFE promulgated the Administrative Measures
for the Registration of Foreign Debt and an appendix thereto, the
Operational Guidelines for the Registration of Foreign Debt
("New Rules on Foreign Debt"). Under the New Rules on
Foreign Debt, borrowers are administered as three different groups:
government finance agencies, banks, and non-bank borrowers. The New
Rules on Foreign Debt have abolished some of the foreign debt
approval requirements, clarified previous uncertainties in the
practice of foreign debt registration and administration, and
consolidated previous regulations on foreign debt registration and
administration. The New Rules on Foreign Debt will come into effect
on 13 March 2013.
The key changes in the New Rules on Foreign Debt are as
Abolishment of Some Foreign Debt Approval Requirements: The New
Rules on Foreign Debt have simplified procedures for foreign debt
registration. Non-bank borrowers are still required to register
foreign debt with their local SAFE; however, it is no longer
necessary to obtain approval from SAFE to open a designated account
for foreign debt, and they are not required to register each
drawdown of foreign debt, and carry out approval formalities for
conversion of loan proceeds into RMB and repayment of principal and
interests. Instead, after the foreign debt registration, non-bank
borrowers may open account, make drawdown, conversion and repayment
with the account banks directly.
Clarification on Conversion of Proceeds of Foreign Debt: The
New Rules on Foreign Debt explicitly provide that proceeds of
foreign debt borrowed by foreign invested enterprises may be
converted into RMB directly by the account bank when making RMB
payments that conform to the regulatory requirements. However,
unless otherwise stipulated, foreign debt borrowed by onshore
financial institutions and Chinese enterprises ("FIEs")
in foreign exchange may not be converted into RMB.
Refinement of Conditions for FIEs to Borrow Foreign Debt: The
New Rules on Foreign Debt have reiterated that foreign debt
borrowed by FIEs shall continue to be subject to the quota of
"foreign debt borrowing gap" (i.e. the gap between the
total investment and registered capital of an FIE); meanwhile, the
New Rules on Foreign Debt provide further clarification on the
conditions that FIEs' borrowing foreign debt are required to
satisfy, for example: (1) when borrowing foreign debt, the foreign
shareholder should have made its capital injection in compliance
with the relevant provisions of the capital contribution contract
and articles of association, and (2) the actual quota for foreign
debt that can be borrowed is equal to the ratio of the foreign
shareholder's paid-in registered capital multiplied by its
foreign debt borrowing gap.
Extension or Refinancing Will Not Take Up Foreign Debt Quota:
The New Rules on Foreign Debt provide that in the case of an
extension or refinancing of medium- or long-term foreign debt
borrowed by an FIE, provided that there is no increase in the
amount of its existing foreign debt and no foreign exchange
conversion, its foreign debt borrowing gap will not be taken up.
This breakthrough provides a feasible approach for FIEs to extend
their existing foreign debt or do refinancing.
Borrowing by Offshore Unincorporated Branches: Pursuant to the
New Rules on Foreign Debt, loans borrowed from offshore
institutions and individuals by an offshore unincorporated branch
of an onshore bank shall not be subject to foreign debt quota
management or be counted as foreign debts for statistics purpose
– this significantly simplifies the formalities for onshore
banks' offshore branch to raise funds or issue bonds offshore.
Loans borrowed from offshore institutions and individuals by an
offshore unincorporated branch of an entity other than an onshore
bank shall be subject to foreign debt quota but not counted as
foreign debts for statistics purpose.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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