On April 29, 2011, the National Association of Financial Market Institutional Investors (“NAFMII”) issued the Rules for the Non-Public Directional Issuance of DebtFinancing Instruments by Non-Financial Enterprises in the Inter-Bank Bond Market (the “Rules”), which came into effect on the issuance date. The Rules have provided for detailed regulations regarding the issuance, registration, custody, settlement and circulation of the directional instruments. The Rules represent a further effort to increase the proportion of direct financing and to expand financing channels for non-financial enterprises, and are made in accordance with the Administrative Measures for Debt Financing Instruments of Non-Financial Enterprises in the Inter-Bank Bond Market (Order of the People’s Bank of China [2008] No.1).

For the purposes of the Rules, “Non-Public Directional Issuance” refers to the issuance of debt-financing instruments by non-financial enterprises to specific institutional investors (defined as the “Directional Investors” under the Rules) in the inter-bank market and circulating the instruments among the specific institutional investors. “Directional Investors” refers to institutional investors who understand the investment risk of Directional Instruments, have the power and willingness to invest in Directional Instruments (as defined under the Rules), have the ability to take such risks and voluntarily accept the self-regulatory management of the NAFMII. “Directional Instruments” means debt-financing instruments which are issued by means of non-public directional issuance and are referred to as nonpublic directional debt financing instruments. The first batch of “Directional Instruments” in an aggregate amount of RMB 15 billion were issued by three large Chinese state-owned companies on May 4, 2011 and the issuance was underwritten by commercial banks including, among others, China Everbright Bank and Bank of China.

The key provisions of the Rules are set out below:

  • Registration: An enterprise shall present related registration documents and register with the NAFMII when issuing Directional Instruments (for a list of registration documents, please see Appendix 2 of the Rules). The NAFMII only checks the completeness of the registration documents and does not make judgments on the investment value or risk. When the NAFMII accepts the application for registration, it shall present the enterprise with a Notice of Registration Application Acceptance which holds a two year period of validity. The enterprise may issue Directional Instruments in installments within the period of validity provided the initial issuance is completed within six months of registration.
  • Issuance: The Directional Instruments are not issued to the general public. The Directional Investors shall be selected and determined by the issuer and the lead underwriter before the issuance of the Directional Instruments. An agreement on Directional Issuance (“Directional Issuance Agreement”) shall be reached by and between the enterprise and Directional Investors who intend to invest in the current Directional Instruments before the issuance of the Directional Instruments to such Directional Investors (for details on the contents of the Directional Issuance Agreement please see Article 19 of the Rules). The Directional Instruments of the enterprise shall be underwritten by the qualified underwriting institutions.
  • Circulation: The Directional Instruments shall be circulated among the Directional Investors as specified in the Directional Issuance Agreement.
  • Custody: The Directional Instruments shall, by the real name bookkeeping method, be registered with and kept in the custody of the institutions for registration and custody recognized by the People’s Bank of China.
  • Disclosure: After the registration of claims and liabilities for the Directional Instruments, the enterprise may release the actual size of issuance, duration, number of original investors, scope of circulation and other basic information of the current Directional Instruments through websites recognized by the NAFMII.

For more information on the Rules, please visit the following Chinese language link: