Lately, a new offshore financing structure has emerged. Led by Hansheng Law Offices’ Senior Partner Zhao Chong, his team has successfully assisted in the issuance of aforesaid offshore project.
This new type of structure and its key issues occurred during the preparation of the project are discussed as follows:
I. Transaction Structure
The Issuer, which is an orphan SPV established and registered in Cayman Islands, intended to issue Guaranteed Bonds.
The Guarantor, established and registered in Republic of Seychelles intended to guarantee the Bonds to be issued by the Issuer (the “Transaction”).
We acted as legal counsel for a PRC subsidiary wholly owned by the Guarantor, to provide legal opinions regarding PRC legal issues related to the PRC subsidiary and the Guarantor involved in the Transaction.
II. Key Legal issues
- Whether the Issuance of Bond is required to file, register or otherwise record with any governmental authorities under PRC laws and regulations.
It is not necessary under PRC laws and regulations to file, register or otherwise record the Bond Issuance Agreement with any governmental authorities in order for the Issuer to authorize and execute, or incur or perform its obligations under the Transaction Documents to which it is a party, or to ensure the validity, enforceability or admissibility in evidence of the Bond Issuance Agreement or to create and perfect any security interest created or granted thereunder. The reasons are as follows:
a. In accordance with Notice on Promoting the Reform of the Filing and Registration System for Issuance of Foreign Debt by Corporates (Fa Gai Wai Zi [2015] No 2044) (《国家发展改革委员会关于推进企业发行外债备案登记制管理改革的通知》)(发改外资[2015] 2044号)) issued by the National Development and Reform Commission (the “NDRC Notice”), Foreign Debt is thereof defined as Debt instruments of more than one year borrowed from abroad by domestic enterprises and foreign enterprises or branches controlled by domestic enterprises, denominated in local or foreign currencies, and agreed to service their debts and interest, including the issuance of Bonds abroad, medium-term and long-term international commercial loans, etc. When issuing aforementioned Foreign Debt, the issuer should file with National Development and Reform Commission (“NDRC”) to obtain the Enterprise Foreign Debt Pre-issuance Registration Certificate in respect of the issue of the Bonds prior to the offering pursuant to the NDRC Notice.
The Issuer thereby is not a domestic enterprise but a foreign enterprise which is established and registered in Cayman Islands. Based on the Reviewed Documents, the shareholder of the Issuer is an offshore enterprise, who has no affiliated relationships with any PRC domestic enterprise/individual or in any way controlled by any PRC domestic enterprise/individual. The letter of confirmation issued by the shareholder of the Issuer clearly states that the Issuer and/or its shareholders have no affiliated relationships with any PRC domestic enterprise/individual or in any way controlled by any PRC domestic enterprise/individual.
Therefore, the Issuer is not a domestic enterprise nor a foreign enterprise or a branch controlled by any PRC domestic enterprise/individual thus the Issuer is not subject to the NDRC Notice nor obligated to file with NDRC in order to issue the Bonds.
b. Through anonymous consultation, the officer of NDRC confirmed that NDRC focuses on the qualification of the issuer and the relation between the issuer and the domestic enterprise in essence. Provided the Issuer, in accordance with NDRC Notice, is not a domestic enterprise nor a foreign enterprise or a branch controlled by a domestic enterprise, the issuance of the Bonds is not subject to the NDRC Notice nor obligated to file with NDRC. - Whether the Guarantee Agreement is required to file, register or otherwise record with any governmental authorities under PRC laws and regulations.
It is not necessary under PRC laws and regulations to file, register or otherwise record the Guarantee Agreement with any governmental authorities in order for the Guarantor to authorize and execute, or incur or perform its obligations under the Guarantee Agreement to which it is a party, or to ensure the validity, enforceability or admissibility in evidence of the Guarantee Agreement or to bear any joint and several liability guarantees for the debtor’s debt created or granted thereunder. Reasons are as follows:confirmed
a. Under the Provisions on the Foreign Exchange Administration of Cross-border Guarantees and its operating guidelines (《跨境担保外汇管理规定》及其操作指引(汇发(2014)29号文)) issued by SAFE (the “No. 29 Provisions”) , it has made provisions on different types of cross-border guarantees and their filing requirements. According to No.29 Provisions, cross-border guarantees therein refer to the guarantees provided, in written and legally binding form, by a guarantor for a creditor to commit to perform the relevant payment obligations in accordance with the guarantee contract, which may result in guarantees for balance of payments transactions, such as cross-border receipts and payments of funds or cross-border transfers of asset ownership. On the basis of the places of incorporation of the parties to the guarantee, a cross-border guarantee is classified as:
(i) an Overseas Loan under a Domestic Guarantee which refers to a cross-border guarantee in which the place of incorporation of the guarantor is within PRC, and the places of incorporation of the debtor and creditor are outside of the PRC (“OLDG”);
(ii) a Domestic Loan under an Overseas Guarantee which refers to a cross-border guarantee in which the place of incorporation of the guarantor is outside of the PRC, and the places of incorporation of the debtor and creditor are within the PRC (“DLOG”);
(iii) or an Other Cross-border Guarantee which refers to any cross-border guarantee other than an OLDG or a DLOG (“OCG”).
Since the Guarantor is an enterprise incorporated in Republic of Seychelles, and the places of incorporation of the debtor (Issuer) and creditor (Subscriber) are also out of PRC thus the type of guarantee is not an OLDG nor DLOG but an Other Cross-border Guarantee (OCG). Pursuant to No. 29 Provisions, unless specifically set forth otherwise by the SAFE, with respect to an OCG the guarantor and the debtor are not required to handle the registration or to record the procedures with the Foreign Exchange Administration.
b. In accordance with the NDRC Notice, when issuing a Foreign Debt, the issuer should file with NDRC to obtain the Enterprise Foreign Debt Pre-issuance Registration Certificate in respect of the issue of the Bonds prior to the offering.
Pursuant to the NDRC Notice, it is required for the issuer to file with NDRC regarding issue or offer the Bonds. As stated above, based on the places of incorporation of the Issuer, the issue or offer of Bond does not qualified as Foreign Debt. Additionally, it is required for the issuer rather than guarantor or any other parties to file with NDRC when issuing Foreign Debt.
Therefore, Guarantor is not subject to the NDRC Notice nor obligated to file with NDRC in order to fulfil its obligations with respect to Guarantee Agreement.
c. Through anonymous consultation, confirmations have been made by officers of SAFE and NDRC as below:
(i) SAFE confirmed that when the Guarantor was an enterprise incorporated in Republic of Seychelles, and the places of incorporation of the debtor (Issuer) and creditor (Subscriber) are also out of PRC, the type of guarantee is what No. 29 Provisions define as Other Cross-border Guarantee (OCG). Under this circumstance, the guarantor and the debtor are not required to handle the registration or to record the procedures with the Foreign Exchange Administration.
(ii) NDRC confirmed that it merely focused on the filing requirements for the issuer rather than the guarantor’s. Provided the issuer, in accordance with NDRC Notice, is not a domestic enterprise nor a foreign enterprise or a branch controlled by a domestic enterprise, the guarantor is not subject to the NDRC Notice nor obligated to file with NDRC.
III. Conclusion
A variety of new financing structures will emerge in the future for no doubt, but what we can do is to keep up with the times and provide our professional legal services with rich project practicing experience.