Excel Partners uses onshore assets to borrow foreign money

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Excel Partners China Fund recently managed to get onshore asset-secured loans for its overseas subsidiaries with an untypical arrangement, said a legal counsel involved.

Excel is an affiliate of Sabin Holdings, a global real estate platform headquartered in San Diego, California. A consortium of five leading international banks, led by Deutsche Bank, recently provided a US$175 million secured term loan to three Barbados subsidiaries of Excel.

梁世杰 SIMON LEUNG
梁世杰 SIMON LEUNG

Excel’s legal counsel was Baker McKenzie FenXun, the joint operation office established by Baker McKenzie and FenXun Partners in Shanghai Free Trade Zone. Simon Leung and Rico Chan, partners of Baker McKenzie in Hong Kong, and Hai Yong, a counsel of FenXun Partners in Beijing, led the legal team.

Leung told China Business Law Journal that when offshore entities that indirectly hold properties and other assets in mainland China through their PRC subsidiaries want to borrow from offshore lenders – which is also called Nei Bao Wai Dai in Chinese – offshore lenders often encounter the difficult issue of structural subordination vis-a-vis the creditors of the PRC subsidiaries.

“A typical solution is for the PRC assets to be charged to friendly onshore lenders, which will enter into inter-creditor arrangements with the offshore lenders,” he said. “Still, this arrangement does not provide offshore lenders with any direct recourse against the PRC assets.”

But a different model was engineered for this Excel borrowing deal. “The present transaction is a good example of how offshore lenders can benefit from Nei Bao Wai Dai arrangements to gain direct recourse against onshore assets,” said Leung.

“We have assisted in completing registration and other regulatory perfection steps in respect of property mortgages, upstream corporate guarantees and receivable pledges with PRC authorities, including the State Administration of Foreign Exchange and the real estate bureau. While these steps are legally feasible under current laws, the implementation of the applicable regulatory perfection steps involved a great deal of co-ordination with local governmental authorities, as they are not familiar with the application of applicable rules in this new structure.”

The loan was secured by a complex security package, mainly consisting of the mortgage of the Excel Centre, a Grade A office building on Beijing’s financial street indirectly owned by the three Barbados subsidiaries of Excel through three wholly foreign-owned enterprises established in Tianjin.

Other security includes cross-border guarantees, onshore and offshore share pledges, debentures and charges on account receivables. The transaction involved multiple jurisdictions including mainland China, Barbados, Hong Kong and the US.