March 2023
Karl Zhang and Teresa Huang
The National Development and Reform Commission (“NDRC”) announced on January 5, 2023 the Administrative Measures for the Review and Registration of Mid- to Long-Term Foreign Debts of Enterprises (hereinafter referred to as the “Measures”), which came into effect on February 10, 2023. Compared with the Administrative Measures for the Review and Registration of Mid- to Long-Term Foreign Debts of Enterprises (Draft for Comments)” (hereinafter referred to as the “Draft for Comments”) issued on August 26, 2022, the contents of the Measures have been changed to some extent. This article will introduce the main contents of the Measures and briefly indicate the changes from the Draft for Comments as follows:
1. General Provisions
For the purposes of the Measures, medium and long-term foreign debts of enterprises (hereinafter referred to as “foreign debts”) means debt instruments with a maturity of more than one year that are borrowed from overseas by enterprises within the territory of the People’s Republic of China and by overseas enterprises or branches controlled by them, denominated in local or foreign currency, and of which principal is repaid with payment of interest as agreed. For the purposes of the Measures, “enterprise” means a non-financial or financial enterprise of any type. For the purposes of the Measures, “control” means the direct or indirect holding of half or more of the voting rights of an enterprise or the capability of dominating the operation, finance, personnel, technology, and other major matters of the enterprise though not holding half or more of the voting rights. For the purposes of the Measures, “debt instruments” shall include but not be limited to senior bonds, perpetual bonds, capital bonds, medium-term notes, convertible bonds, exchangeable bonds, financial leasing, and commercial loans. Compared with the Draft for Comments, the Measures do not include preferred shares in the scope of debt instruments.
The NDRC shall be responsible for administering the review and registration of foreign debts. An enterprise may apply for the review and registration of foreign debts and report the relevant information, among others, through the management and service network system for the review and registration of foreign debts of enterprises (hereinafter referred to as the “network system”); and for any matter unsuitable for the use of the network system, the enterprise may submit paper materials.
2. Size and Use of Foreign Debts
The NDRC shall rationally regulate and control the total amount and structure of foreign debts of enterprises based on the needs of national economic and social development, the balance of payments, and foreign debt carrying capacity. An enterprise may, at its discretion, decide to use funds raised from foreign debts at home and abroad according to its credit status and actual needs, and the use of funds shall meet the following conditions: not violating China’s laws and regulations, not adding hidden debts of local governments, and not being used for making up losses or speculation, etc., and not being transferred to others except for banking-type financial enterprises or those who have obtained an approval. (In the Draft for Comments, only banking-type financial enterprises may transfer foreign debts to others, but the Measures added exceptions for other general enterprises, while also deleting the prohibition on using funds raised from foreign debts for making up losses.)
3. Review and Registration of Foreign Debts
An enterprise that borrows a foreign debt shall meet the following basic conditions: (1) it is an enterprise duly organized, validly existing, and operating in a compliance manner, with a sound and well-functioning organizational structure; (2) it has a reasonable demand for funds raised from foreign debts, the use of which shall comply with the aforesaid provisions, and it has a good credit status, solvency, and a sound mechanism for the prevention and control of foreign debt risks; (3) none of the enterprise, its controlling shareholders or de facto controller shall have, in the three years prior to the application, committed criminal offenses relating to corruption, bribery, illegal possession of assets, misappropriation of assets, sabotage of the socialist market economic order, or be currently under formal investigation on suspicion of other offenses or material violations of laws and regulations. The Measures do not incorporate the requirement in the Draft for Comments that “its issued bonds or other debts are not in default and without any delayed payment of the principal and interest.”
An enterprise that plans to issue foreign debts shall submit an application report to the NDRC through the headquarters of a company in China controlled by it with relevant documents. The NDRC shall, within three months from the date of acceptance, issue a Certificate of Review and Registration for any application for review and registration that is in compliance with regulations, and issue a written notice on refusal of review and registration for any application for review and registration that is not in compliance with regulations, and explain the reasons therefor. After accepting an application for review and registration, if the enterprise is required to provide any additional disclosure or explanation, or the intermediary is required to further verify any issue, the NDRC may issue a written notice for completion and correction. The Certificate of Review and Registration shall be valid for one year from the date of issuance, and shall become null and void automatically upon expiration of such term of validity.
4. Risk Management and Interim and Ex-post Supervision of Foreign Debts
An enterprise shall, within 10 working days after borrowing each foreign debt, report to the NDRC through the network system the information on the foreign debts borrowed by it, including its main business indicators and the foreign debts borrowed, and shall, within 10 working days after the expiration of a Certificate of Review and Registration, report to the NDRC the information on the corresponding foreign debts. In addition, the enterprise shall report to the NDRC through the network system the use of funds raised from foreign debts, the payment of relevant principal and interest, planned arrangements and its main business indicators within 5 working days before the end of January and July of each year.
5. Legal Liability
If an enterprise borrows a foreign debt in violation of the Measures, such enterprise and its main responsible persons shall be interviewed, publicly warned or imposed other disciplinary measures by the NDRC according to the seriousness of circumstances. The Measures do not include the punitive provisions in the Draft for Comments that an enterprise and its main responsible persons shall be suspended from carrying out or participating in the enterprise foreign debt business due to its borrowing foreign debts in violation of regulations. For any enterprise whose application materials and disclosed information contain any concealment, false record, misleading statement or material omission, the NDRC shall warn such enterprise and its main responsible persons. If an enterprise obtains a Certificate of Review and Registration through concealment, deception, bribery and other improper means, the NDRC will also revoke the Certificate of Review and Registration. If an enterprise who fails to report relevant information in accordance with Articles 24 and 26 of the Measures, the NDRC will order the enterprise to correct the situation within a time limit; if the circumstance is serious or the enterprise fails to make the correction, the enterprise and its main responsible persons will be warned.
If an intermediary knows or should have known an enterprise’s borrowing of a foreign debt in violation of the Measures but still provides relevant intermediary services for such enterprise, or if a written verification report and opinions issued by an intermediary and related disclosed information contain any concealment, false record, misleading statement or material omission, the NDRC will circulate the violations and penalize such intermediary and relevant responsible persons in accordance with laws and regulations. Compared to the Draft for Comments, the Measures added the subjective element premise of “knows or should have known” for the fault-liability imputation.
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