On 7 March 2013, the National Development and Reform Commission (the “NDRC”) published the “Template Outline of the Application Report for the Issuance of Renminbi bonds in Hong Kong by Onshore Non-financial Institutions” (the "Template Outline") which sets out the relevant information required to be included in an application for Renminbi (“RMB”) bond issuance in Hong Kong by PRC onshore non-financial institutions.
As part of China’s commitment to foster the development of the offshore RMB bond market in Hong Kong, the NDRC published the “Circular on the Matters relating to the Issuance of RMB Bonds in Hong Kong by Onshore Non-financial institutions” (the “NDRC Circular”) on 2 May 2012 which formalises the approval process and stipulates the regulatory framework for PRC onshore non-financial institutions to issue RMB bonds in Hong Kong. Further to the NDRC Circular, the NDRC issued the Template Outline on 7 March 2013, which became effective on 15 March 2013.
The Template Outline supplements the NDRC Circular by setting out a comprehensive list of information to be included in an application for the issuance of RMB bonds in Hong Kong by PRC non-financial institutions. This article summarises the required information as set out in the Template Outline.
An applicant is required to include in its application the following detailed information regarding its corporate, business and financial status:
- Corporate status: the applicant’s name, address, date of incorporation, registered capital, history and development, details of its shareholders, corporate governance, organisational chart and major controlling subsidiaries.
- Business status: information regarding the industry (including the current status and future prospects) in which the applicant operates, the applicant’s market position and competitive strengths compared to its peers, its major business operations, conditions and development strategies (including any overseas businesses).
- Financial status: an analysis of the applicant’s operating capability, profitability, cash flow and solvency, as well as its financial data and consolidated balance sheets for the last three financial years and for the latest quarter.
Necessity and feasibility analysis in respect of the proposed RMB bond issuance
An applicant is also required to provide an analysis on how the proposed RMB bond issuance may expand the applicant’s financing channels, reduce its financing costs, optimise its capital structure, promote its business development, strengthen the internationalisation of its business operations, diversify the types of bond issuers in the Hong Kong RMB bond market and promote the development of the offshore RMB bond market in Hong Kong and overseas markets.
In addition, an applicant is required to include in its application a feasibility analysis on its eligibility for the proposed RMB bond issuance, market demand for the proposed RMB bond issuance, whether the use of proceeds of the proposed RMB bond issuance will be in line with the PRC’s policies and strategies as well as the relevant risk warnings and risk management measures.
Proposal for the RMB bond issuance
An applicant is required to prepare a proposal for the RMB bond issuance which sets out the following information:
- Overview of the proposed RMB bond issuance: an applicant is required to provide details of the issuer of the bonds, the proposed issue size, type of bonds, tenor, interest rate basis, mode of issuance, target group of investors, repayment structure and whether the bonds will be guaranteed and rated. For unrated bonds, the applicant will also need to provide any internal ratings conducted by other parties, such as the managers of the proposed RMB bond issuance.
- Intended use of proceeds: in addition to specifying the intended use of proceeds, an applicant is also required to provide additional information including the review, approval or filing status of any relevant project, the status of any acquisition agreement and any memorandum of understanding. Copies of the relevant documents are also required to be submitted in support of the application.
- Repayment ability: an applicant is also required to provide an analysis of its repayment ability for the proposed RMB bonds on the basis of its profitability, financial condition, revenue to be generated from any target project and any guarantee to be provided.
Plan for the proposed RMB bond issuance
An applicant is also required to set out an analysis of the expected outcome of the proposed RMB bond issuance on the basis of the RMB bond market conditions in Hong Kong as well as the issue size, tenor, guarantee and ratings etc. of the proposed RMB bond issuance.
An applicant must also submit a detailed working timetable for the proposed RMB bond issuance in the event that approval is granted.
The supplemental regulations set out in the Template Outline provide further guidance for onshore non-financial institutions in relation to their applications for RMB bond issuance in Hong Kong. While the Template Outline is not meant to be exhaustive, the comprehensive list of information contained therein would nonetheless provide a degree of certainty for all applicants and is of great assistance to them in preparing their applications.
Finally, it is worth noting that in the publication notice for the Template Outline, the NDRC expressly stated that while the Template Outline is applicable for RMB bond issuances in Hong Kong by onshore non-financial institutions, RMB bond issuances in offshore markets other than Hong Kong by onshore non-financial institutions should also follow the requirements as set out in the Template Outline. Therefore, the Template Outline can be seen as a general guidance for applications by onshore non-financial institutions to issue RMB bonds in offshore markets.