Circular Fa Gai Wai Zi [2015] No. 2044, recently released by the National Development and Reform Commission (“NDRC”), aims at facilitating offshore financing for Chinese- invested enterprises.

The main highlights:

  1. Foreign debts covered include any debt instruments borrowed from overseas lenders by Chinese-invested domestic enterprises (or, surprisingly, offshore enterprises or branches under their control), denominated in RMB or foreign currencies, and with a term exceeding one year. They include bonds issued overseas and long-term international commercial loans.
  2. The quota-based, pre-approval regime is abolished and replaced by record-filing procedures with the NDRC and a reporting obligation of relevant information, which takes into account the rating status of the eligible issuer or borrower enterprises.
  3. The NDRC will determine the maximum annual foreign debt based on the actual needs of different regions and enterprises, and enterprises will be able to issue foreign debt in batches, depending on the conditions of domestic and overseas capital markets and their business needs. 

FIEs are, in principle and according to the NRDC’s informal comments, excluded from the scope of the Circular. However, this, and the effects on the maximum foreign debt gap applicable to FIEs, should be formally confirmed, as the literal Circular wording does not seem to make this distinction.

Also, the full implementation of the Circular still raises uncertainties on several associated issues (e.g., repatriation and free use of proceeds) depending on other regulations that have not been updated accordingly and are under the supervision of different authorities (e.g., the State Administration of Foreign Exchange).

Date of issue: September 14, 2015. Effective date: September 14, 2015