President Xi Jinping of the People's Republic of China ("PRC") paid a state visit to the United States last week and agreed, inter alia, to continue the endeavour to build anew model of major-country relationship between China and the U.S. based on mutual respect and win-win cooperation. Click here to read more.

Britain is also keen to strengthen its links with China and despite the events which occurred on ‘Black Monday’ in August 2015, which saw the Shanghai Composite Index drop by 8.5%George Osbourne, the UK’s Chancellor of the Exchequer, was quoted as saying "…Britain can't run away from China. Quite the opposite: we should run towards China." Click here to read the Financial Times article published on 21 September 2015.

The Asia Pacific Loan Market Association ("APLMA") is the pan-Asian association that mirrors the activities of the Loan Market Association in Europe. Its aim is to represent the interests of institutions involved in the syndicated loan markets of the Asia Pacific region and to advocate common market standards and practices with a view to enhancing global loan market activity.

The APLMA reported this week that Asia Pacific (ex-Japan) loan volume has reachedUSD311.9bn in 2015 YTD. China accounts for 25% of the region's loan volume (USD77.9bn in 2015), followed by Australia (USD54.6bn) and Hong Kong (USD39.0bn) YTD.

Real Estate was the leading sector for Asia Pacific loan volume in 1H 2015, withUSD42.2bn, down 28% year-on-year and accounting for 12% of the region's total. Followed by Finance and Utility & Energy with USD30.5bn and USD29.8bn, respectively.

USD-denominated loan volume overtook other currencies in Asia Pacific (ex-Japan) with a total of USD72.3bn in 1H 2015, (down 37% on the same 2014 period (USD114.2bn)). In contrast, RMB-denominated loan volume of USD39.9bn was up 78% year-on-year, reaching a 1H record high.

This month’s trade alert sets out some of the key considerations for loan traders investing in China.


The APLMA publishes primary forms of Facility Agreements, under English Law, Hong Kong Law and Singapore Law, and secondary trading terms in China generally follow the English Loan Market Association secondary trading documentation.

Unlike Hong Kong which retains the common law system inherited as a former British colony, China's legal system is largely a civil law system with no strict precedential concept for case law.

The Enterprise Bankruptcy Law of the PRC is the principal legislation applicable to the insolvencies and reorganisations of all "enterprise legal persons" incorporated in China.


A banking licence is not required for a foreign entity to acquire the debt of a Chinese borrower.

However, lending between Chinese enterprises is prohibited unless a financial licence is obtained according to the PRC Banking Supervision Law and the Measures for the Administration of Financial Licences.

The provision of security by a Chinese entity in favour of a foreign lender issubject to administration by the State Administration of Foreign Exchange(“SAFE”) or its local or sub-branch according to relevant rules. However, on 1 June 2014, SAFE significantly relaxed the regulatory regime on cross-border guarantees and security interests under the Foreign Exchange Administration Regulations on Cross-Border Guarantees and Security. Amongst other things, the regulations allow a domestic entity to provide security or guarantees to an offshore creditor to secure the obligations of a principal debtor without the need for approval by SAFEprovided that the security or guarantee is registered with SAFE within 15 days of signing.

Previously, the restrictions on cross-border capital transfer resulted in losses for offshore investors who would be structurally subordinated to domestic creditors in the event of default of a company in mainland China.  For example, in 2013, Suntech Power Holdings Co., the world's largest solar power producer, defaulted on its overseas debt.  Offshore bondholders were subordinated to Chinese creditors in claims against the company's assets, which highlighted the risks of Chinese company defaults.

The 2014 regulations aim to increase international investor confidence by providing for direct enforcement rights, making it easier for Chinese companies to raise financing abroad at lower offshore funding costs.


Chinese law recognises trust and agency structures.

In general, lenders can appoint a facility agent and/or security agent to act for and on behalf of all creditors in a syndicate. In an enforcement scenario, this allows an agent or trustee (rather than separate lenders) to enforce the loan documentation and apply the proceeds of any collateral to each lender in accordance with their proportion of participation under the loan.

The courts will usually recognise a foreign facility agent or trustee provided that an agent is permissible under the governing law of the agreement and provided that the trust isenforceable under the governing law of the agreement.

Mortgages over real property are common forms of security in China and pledges become effective upon registration at the relevant land or building registration authority (depending on the location of the asset). However, due to the fact that all land is owned by the state, mortgages can only be granted over land use rights and not over the ownership of the land itself.

Governmental consents or filings may be required if a guarantee is given in favour of a foreign lender. Security to be considered carefully on a case-by-case basis.


Assignment is the most commonly used mechanism for transfer of a loan in China but a number of sub-participation transactions also occur in practice.

A lender can transfer all or part of its rights under the loan to a third party at his sole discretion except when the loan cannot be transferred due to (i) the nature of the loan agreement; (ii) mutual agreement between the parties; or (iii) where prohibited by law.

Under Chinese law, the borrower’s consent is not required for a transfer to take place. However, the borrower and guarantor (if applicable) of the loan must be notified to make the transfer of the loan effective.


China imposes a standard withholding tax rate of 10% on interest payable on loans received by a foreign lender from a domestic borrower. This tax is reduced to 5% if a tax treaty applies.

Apart from nominal registration fees, in respect of enforcement, lenders should be aware that Stamp Duty is levied on the transfer of real estate at a rate ranging from 0.05%(for loan agreements) to 0.1% for other related property transactions (depending on the type of asset) payable by both the lender and the borrower. The rate of stamp duty on share transactions is 0.1% for shares listed on a domestic stock exchange.

The PRC has a broad tax treaty network of more than 100 tax treaties with various foreign countries including the United States and United Kingdom. These treaties generally provide relief from double taxation on all types of income and in addition aim to reduce withholding tax on (i) dividends (ii) interest and (iii) royalties to a preferential tax rate of 10% which is lowered from the statutory 20% rate for domestic lenders.


No transfer tax will be levied when a foreign buyer acquires debt in a Chinese borrower from a Chinese lender.

Since the reform of China’s tax laws in 2007, foreign creditors have the same status as PRC investors in terms of taxes and there are no tax incentives or preferential rates applicable to foreign creditors except for those preferential rates provided for in the tax treaties concluded between China and various countries and areas.


As mentioned above, consent of the borrower is not required under Chinese law, however, a transfer of a loan is perfected and made valid and enforceable by way ofnotification to the borrowerThis requirement should be included as a undertaking by the assignor in an assignment agreement.

In regards to property, registration of the transfer of real estate and the delivery of any applicable chattels will perfect the assignment. Where a creditor assigns the right under a guarantee to a third party, the guarantor continues to bear the guarantee liability within the original guaranteed scope of the guarantee until notified of the assignment.

Special Note:

Special thanks to Louis Savage and Alex Wang, Associates in Cadwalader’s Beijing office, who assisted us with this Trade Alert.


Rocky Lee, Beijing, Head Of Asia

T.+86 (10) 6599 7288

Rocky Lee is a leading private equity and M&A lawyer handling transactions on behalf of clients doing business and making investments in Great China for more than a decade. 

He is widely recognized as one of the top China legal advisors to financial institutions, funds, executives, general counsel and boards of directors.  Rocky is a pioneer of PRC cross-border equity and debt instruments and securities laws issues and her regularly addresses highly complex PRC business and legal issues.  He is also highly regarded for his deep knowledge of the complex regulations governing foreign investment in China, foreign exchange, and cross-border transaction structuring.  Rocky is the managing partner of Cadwalader’s Asia practice and is the head of its China corporate practice.

Louisa Watt, Head of Debt and Claims Trading

+44 207 170 8678

Louisa Watt is head of the firm's Debt and Claims Trading Practice and a partner in Cadwalader's Financial Restructuring Group.

Louisa specialises in representing investment funds, bank lenders, brokerage firms and other financial institutions in the acquisition and sale of syndicated bank loans, debt instruments, derivatives claims, bond claims and deposit related trades throughout Europe, the United States and Asia.  She is recognised as a leading authority on secondary loan trading in distressed situations and has extensive experience in complex cross-border trading transactions, as well as loan-to-own strategies and non-performing loan portfolio investments.




1.    ABENGOA S.A.: RENEWABLE ENERGY Spanish banks (incl. SantanderCaixabank andBankia) and international banks' exposure to the indebted renewable energy company is estimated at EUR20.2bn (USD22.7bn).

Abengoa has called a noteholders' meeting for 29 October 2015 to approve the grant of guarantees to its 2017-2019 convertible bonds and 2017 exchangeable notes. The Spanish group has reached an agreement in principal with HSBCCredit Agricole and Santander who are current creditors, to underwrite a proposed EUR650m capital increase and the company has said it will convene a shareholders meeting on 10 October 2015.

For queries on Abengoa, please contact Karen McMaster:

 Karen McMaster, Partner Restructuring

+44 (0) 20 7170 8513

2.    YUKSEL HOLDING A.S.: Noteholders have approved the change to the law governing Yuksel's  USD200m Notes from New York to English. Similar to Apcoa and DTEKYuskel required a majority vote from the Noteholders in order to amend the governing law which will allow Yuksel to use anEnglish scheme of arrangement to restructure its Notes.

Cadwalader represents the ad hoc committee of Yuksel Noteholders. For queries regarding Yuksel contact Alex Kay:

Alex Kay

+44 207 170 8520

3.    AVANGARDCO INVESTMENTS PUBLIC LTD: On 24 September 2015 Justice Morganallowed Ukraine's largest egg producer's proposed scheme of arrangement to extend the maturities on its USD200m Notes due on 29 October 2015 to proceed to a class meeting stage. Justice Morgan was satisfied that the Ukrainian egg producer could establish a sufficient connection to the England as the Notes are governed by English law.

Creditors are due to vote on the scheme as a single class at a meeting on 22 October 2015 and if the scheme is approved, the Notes will be extended for a further three years.

Cadwalader represents a group of Noteholders in connection with the Notes' extension.

4.    STEMCOR: On 30 September 2015, Mr Justice Morgan sanctioned the Scheme of Arrangementproposed by Stemcor Trade Finance Limited. Justice Morgan approved the scheme after the Junior Lender, State Bank of India, abandoned its request to delay the sanction by seven days. The Court determined that it had jurisdiction and that the relevant requirements to sanction a scheme had been fulfilled; sufficient classes of creditors were represented, a statutory majority voted in favour of the scheme and the scheme was likely to have a substantial effect for the Company.   



KAUPTHING: A creditors’ meeting was held on 30 September 2015.

The Winding-up Committee of Kaupthing has announced that the final date for filing transfer request forms is 2 October 2015 (“Transfer Bar Date”).

Claim transfer request forms must be duly completed and received in original counterparts by Epiq Bankruptcy Solutions LLC on or before the Transfer Bar Date in order to ensure successful transfer of a claim to a buyer.

LBI hf: The next creditors’ meeting will be held in Iceland at Hotel Hilton Reykjavík Nordica on2 October 2015 at 9:00am.

The Winding-up Board will present to the meeting its stability contribution proposal The full agenda for the meeting is published on LBI closed creditors’ website.

The Winding-up Board proposes to hold a further meeting on 5 November 2015 where creditors will be invited to vote on the composition proposal.

GLITNIR BANK: Glitnir held a creditors’ meeting on 8 September 2015. All transfers are currently frozen and no new Notices of Successful Transfer will be issued following the 11 September transfer bar date.

Glitnir will announce a further creditors’ meeting to approve the composition plans following the successful closure of the transfer process in accordance with a timeline to meet the 31 December 2015composition deadline.

For further information on Icelandic claims trading please contact:

Shelley Kay

+44 207 170 8664

Shelley Kay is an Associate in Cadwalader's Financial Restructuring Department and specializes in distressed debt and claims trading. Shelley frequently represents investment funds, hedge funds and other financial institutions in connection with the acquisition and sale of syndicated bank loans, debt instruments and bond claims.


1.    M&A AND LOAN PORTFOLIOS: Cadwalader’s corporate team, Paul Dunbar and John Hughes, have recently published an article on distressed M&A and loan portfolio acquisitions.

PwC forecast EUR150bn in sales of European banks' loan portfolios in 2015.  The article published by Practical Law Company provides guidance on the commercial and legal issues surrounding the acquisition of a target group or portfolios in a distressed situation.

Please click here to read the full article, published on Practical Law.


The Loan Market Association intends to publish updated Standard Terms and Conditions (together with all relevant updated secondary loan trading documents) on the pending page of the LMA website from 12 October 2015, with a “go-live” date one month later.

Following a review of the secondary loan trading documents, the secondary documentation committee considered amendments to address, inter alia, who is responsible for any notarial fees, cost of carry payments in case of negative IBOR and the duties of parties when holding non-cash distributions on behalf of the other party.