Since the Belt and Road Initiative was put forward more than five years ago, investments of Chinese-funded enterprises in countries under the initiative have unfolded. In 2017, in order to support construction of the Belt and Road Initiative, the Export-Import Bank of China established special facilities loans totalling RMB130 billion (US$18.36 billion), of which overseas investment loans become an important choice for Chinese-funded enterprises in cross-border project financing.
This article analyzes the conditions of application for overseas investment loans of the Export-Import Bank of China, in order to provide a reference for Chinese-funded enterprises that intend to engage in the construction of the Belt and Road Initiative.
Loan type. Export-Import Bank of China loans are divided into 10 types under four main categories, namely: supporting foreign trade; supporting cross-border investment; supporting foreign co-operation; and supporting China’s opening-up. The overseas investment loans are firm favourites with Chinese-funded enterprises due to their wide use.
Application conditions. Overseas investment loans refer to the local and foreign-currency loans provided by Export-Import Bank of China to meet the funding needs of various overseas investment projects of domestic and overseas Chinese-funded enterprises. According to the information published by Export-Import Bank of China, the conditions of application for overseas investment loans include:
(1) The borrower shall have viable operational management and financial conditions, good credit standing, and the ability to repay the loan principal and the interest accrued thereon;
(2) Relevant projects shall have good expected economic returns;
(3) The country where the project is located shall have a good investment environment, and a stable economic and political situation;
(4) If the borrower is an overseas Chinese-funded enterprise, the overseas investment project concerned shall feature relatively low overall risks, stable investment returns, and full guarantee for the repayment of the loan principal and the interest accrued thereon;
(5) If the borrower is an overseas Chinese-funded enterprise not controlled by a domestic enterprise (except for newly established SPV or project companies), the use of and guarantee for the loan shall comply with relevant requirements of China’s foreign exchange management regulations;
(6) A repayment guarantee recognized by the Export-Import Bank of China shall be provided (normal guarantee measures for overseas investment loans will be described in our next article);
(7) Overseas investment insurance shall be purchased as deemed necessary by Export-Import Bank of China; and
(8) Other conditions as deemed necessary by Export-Import Bank of China.
Based on the authors’ experience in overseas projects under the Belt and Road Initiative in recent years, Chinese-funded enterprises ought to pay special attention to the following three matters when applying for overseas investment loans.
First, with regard to a project under the Belt and Road Initiative that is carried out by a Chinese-funded enterprise in a country or region with a higher possibility of political risk (expropriation, exchange limitation, war, political riots, default and other risks), the Export-Import Bank of China will require the borrower to purchase overseas investment insurance in disbursing loans.
Considering that the China Export & Credit Insurance Corporation is currently the main insurer providing overseas investment insurance for Chinese-funded enterprises, a Chinese-funded enterprise may, before applying for an overseas investment loan, refer to the Report on Facilitation of Investment and Operation in Countries (Regions), published each year by the insurer, so as to make proper and early preparation for decision making about purchasing overseas investment insurance.
Second, an overseas investment loan contract generally stipulates “representations and warranties of the borrower” clauses. In the authors’ experience, the following two provisions are normally included in these clauses: (1) full disclosure. The borrower shall warrant that it has disclosed to Export-Import Bank of China, without omissions, important facts and information known by the borrower on which the bank may rely in determining whether to grant a loan to the borrower, including events that may have an adverse impact on the financial position and the loan repayment ability of the borrower; and (2) completion of all relevant procedures. The borrower has fully, legally and validly obtained all such approvals, permits or consents of all government departments and any other parties as are necessary for signing of a loan contract and execution of the project investment.
Third, the Export-Import Bank of China may, according to the specific conditions of a project, require the legal adviser of the borrower to issue a legal opinion with regard to the loan contract, and take into consideration: the shareholding percentages of Chinese shareholders in the borrower; the capital contribution of Chinese parties in the investment project; the proportion of funds owned by the borrower to the capital contribution amount required for the project; and the availability of project funds and otherwise in determining whether to disburse a loan and the loan quota. If the borrower is an overseas Chinese-funded enterprise, the Export-Import Bank of China will also require the borrower to designate a Chinese enterprise as an agent of Chinese litigation documents.
The process of application for overseas investment loans of the Export-Import Bank of China is relatively complex, with higher compliance requirements, and in which a legal due diligence report is required. It is suggested that a Chinese-funded enterprise should engage a professional lawyer in advance to carry out due diligence research on overseas investment projects and target countries, and to support the enterprise in teasing out and preparing all such materials as are necessary for the loan application, and to fully participate in negotiations on the loan contract of the Export-Import Bank of China, so as to strongly guarantee a successful loan application.
With further progress in the national strategy of the Belt and Road Initiative, Chinese-funded enterprises, the Export-Import Bank of China, and Chinese lawyers will certainly have more development opportunities, and can closely co-operate with each other on the road of “Going global”.
Zhong Lun Law Firm
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