On 29 April 2016, the People’s Bank of China (“PBOC”) promulgated the Circular on the Nationwide Implementation of Prudent Administration of Cross- Border Financings (《中国人民银行关于在全国范围内实施全口径跨境融资宏观 审慎管理的通知》) (the “PBOC Circular”). The PBOC Circular came into effect on 3 May 2016.
The PBOC Circular seeks to reconfigure and unify the existing regulatory frameworks on PRC cross-border financings in both RMB and foreign currencies. As we have reported earlier, the National Development and Reform Commission of China (“NDRC”) promulgated the Circular on Promoting Reform on the Administration of Filing and Registration of Foreign Debt Issued by Enterprises (《国家发展改革委关于推进企业发行外债备案 登记制管理改革的通知》) in September 2015 (the “NDRC Circular”), introducing significant changes to the then-existing regulatory framework on PRC cross-border loans and bond issuances. As noted in our previous alert, repatriation of loan proceeds, currency conversion and repayment outflows are administered by the State Administration of Foreign Exchange of China (“SAFE”) (and its supervisory agency, PBOC) and until SAFE and PBOC announce any changes to their current requirements or practice, the practical impact of the reform remains uncertain.
Whilst it is encouraging to see that both the NDRC Circular and the PBOC Circular set out to abolish the old case-by-case approval system for incurrence of foreign debts and to relax the restrictions on PRC inbound financing, the two circulars diverge in a number of important respects:
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The promulgation of the PBOC Circular is a welcome development following the NDRC Circular. In particular, the clarity it provides to PRC entities in terms of the amount of foreign debt they can incur may enable PRC enterprises to structure future financing transactions with more certainty. However, the divergence between the two circulars may unfortunately result in continued uncertainties for borrowers, lenders and their advisors in practice. Until further clarification is available, perhaps in the form of SAFE’s implementation rules, borrower and lenders, when faced with differences in the two sets of rules, would be prudent to assume that the two circulars will apply in parallel and must both be complied with.