China: Pilot Policy Promulgated In Shenzhen —Domestic Banks May Assign Non-Performing Assets To Foreign Investors

Last Updated: 21 December 2017
Article by Fangda Partners

Due to the foreign exchange control principle in mainland China that "domestic debt shall not be converted into foreign debt", domestic banks were not permitted to make outbound assignment of their domestic non-performing loans ("NPLs") to foreign investors. To our knowledge, such restriction has been lifted by a pilot policy relating to cross-border assignment of banks' NPLs recently introduced in Shenzhen, and it is noteworthy that the pilot policy is not only applicable to banks located in Shenzhen but also all other banks in mainland China.

We set forth below a brief summary of this pilot policy.

1 Legal Basis

We understand that the Reply of the State Administration of Foreign Exchange Concerning the Pilot Business of Cross-border Assignment of Banks' Non-performing Assets in Shenzhen by the State Administration of Foreign Exchange's Shenzhen Branch (Hui Fu [2017] No. 24) , namely the pilot policy, was promulgated to authorize the Shenzhen Branch ("SAFE Shenzhen Branch") of the State Administration of Foreign Exchange ("SAFE") to promote the pilot program regarding cross-border assignment of banks' non-performing assets following the principles of "review and approval on a case by case basis and assignment limited to banks' NPLs". Pursuant to the pilot policy, Shenzhen became the first pilot area which is authorized to review, approve and manage applications for cross-border assets assignment. The authorization is valid for one year, which will expire on 31 May 2018. When the pilot policy expires, it will be revised and adjusted based on how it has been implemented.

2 Applicable Scope

The pilot policy only applies to outbound assignment of NPLs from domestic banks to foreign entities. There is no mandatory requirement on the currency of the assignment. The assignees shall be foreign institutional investors.

In addition, (i) the legal relationships of the NPLs to be assigned should be as simple and clear as possible, (ii) preferably the NPLs do not involve disputes, and (iii)the underlying NPLs should not be too complicated and should not involve the real estate sector, government financing platforms and other sensitive industries and entities.

3 Assignment Procedures

An applicant of NPLs assignment shall, in respect of each NPLs assignment transaction, apply to SAFE Shenzhen Branch for review and approval, and after obtaining such approval, shall register the agreement execution in connection with the cross-border financing with SAFE Shenzhen Branch. In addition, the applicant shall also go through the formalities in relation to opening and closing of the foreign debt accounts, cross-border collection, payment, remittance and conversion of funds, cross-border financing deregistration and etc.

While Banks located in Shenzhen may go through the above formalities as applicants themselves, or entrust Shenzhen Qianhai Financial Assets Exchange as the applicant to go through the above formalities, banks located in other places in mainland China must only go through the above formalities through Shenzhen Qianhai Financial Assets Exchange. If Shenzhen Qianhai Financial Assets Exchange acts as the applicant, the underlying NPLs shall be quoted on and assigned through Shenzhen Qianhai Financial Assets Exchange.

4 Not Taking Up Foreign Debt Quota

Although the applicants mentioned in Section 3 above shall be responsible for the registration of the cross-border financing with SAFE Shenzhen Branch on behalf of the borrowers of the underlying NPLs, the cross-border financing arising from such outbound NPLs assignment will neither take up the applicants' foreign debt quota nor the underlying borrowers' foreign debt quota.

5 Current Development

In December 2016, the first outbound NPLs assignment transaction conducted through Shenzhen Qianhan Financial Assets Exchange in mainland China was completed upon the approval of SAFE Shenzhen Branch after obtaining SAFE's approval.

To our knowledge, a few outbound assignments of NPLs are currently conducted through Shenzhen Qianhai Financial Assets Exchange.

深圳获批银行不良资产对外转让试点

境内银行将境内不良贷款直接转让给境外投资者,因有"内债不能转成外债"的限制,一直无法进行。 据我们了解,深圳刚刚出台了银行不良资产跨境转让试点政策,打破了该限制,更值得关注的是,该政 策适用内地所有地方的银行,而不仅仅限于深圳辖区内的银行。

我们在此对该政策简要介绍如下:

1 法律依据

据我们了解,《国家外汇管理局关于深圳市分局开展辖区内银行不良资产跨境转让试点业务有关事项的批 复》(汇复[2017]24号),授权深圳市外汇管理局("深圳外管局")以"逐笔审核、交易限定"为原则,推进银行不良资产跨境转让试点。深圳成为全国首个获得授权,自行审核管理,辖内机构跨境资产转让 业务申请的试点地区。审核授权为期一年,至2018年5月31日,试点期满,视实施情况调整和修订试点 政策。

2 适用范围

该政策限于内地银行向境外转让不良资产,交易币种不限,流入币种可自由选择,要求受让主体为境外 机构投资者。

此外,拟转让的资产法律关系要尽量简单清晰,最好不涉及债权纠纷,底层的资产也不要过于复杂,还 应避开房地产业及政府融资平台等敏感行业和主体。

3 转让流程

不良资产转让业务申请人应就每笔不良资产转让向深圳外管局申请核准,并在得到核准后办理跨境融资 签约登记,开立和关闭外债账户、资金跨境收付和汇兑以及跨境融资登记注销等手续。 深圳辖区内银行可直接作为业务申请人,也可通过前海金融资产交易所办理上述手续,内地其它地方银 行应通过前海金融资产交易所办理上述手续。通过前海金融资产交易所作为业务申请人办理上述手续的, 相关不良资产应在前海金融资产交易所挂牌转让。

4 不占用外债额度

虽然不良资产跨境转让业务申请人应作为跨境融资备案主体,代不良资产项下实际债务人,到深圳外管 局办理跨境融资签约备案,但因跨境转让形成的跨境融资,不占用业务申请人自身跨境融资额度,也不 占用实际债务人的外债额度。

5 现状

2016年12月,深圳外管局报请国家外汇管理局核准,通过前海金融资产交易所成功办理了国内首单以平 台为依托的跨境资产转让业务。

而据我们了解,目前有数笔不良资产正在通过前海金融资产交易所进行跨境转让。

First published June 2017.

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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