The outbreak of COVID-19 at the beginning of 2020 left many Chinese enterprises in hot water. In order to ease financial pressure, some enterprises resorted to bond financing and issuing bonds abroad became their optimal choice because of the short time required. Accordingly, local governments have developed special policies to support pandemic prevention and control, work resumption and development of real economy.
In order to mitigate the adverse impacts of pandemic prevention and control measures on relevant enterprises, certain government authorities have launched a series of special favourable policies to strengthen finance during the outbreak. Such polices for issuing bonds abroad are summarized below.
Extension of validity. Pursuant to the existing Notice on Promoting Reform on the Administration of Filing and Registration for Enterprises to Issue Bonds Abroad, promulgated by the National Development and Reform Commission (NDRC), an enterprise that intends to issue bonds abroad shall obtain the Registration Certificate of the Issue of Bonds Abroad by Enterprise before issuing bonds abroad.
According to the Guidelines on the Application for Extension of Validity of the Registration Certificate of the Issue of Bonds Abroad by Enterprise, developed by the NDRC recently, where an enterprise obtains a valid Registration Certificate of the Issue of Bonds Abroad by Enterprise and applies to extend the validity of such certificate, the validity period may be extended for six months, provided that the enterprise meets relevant conditions.
For enterprises with sufficient working capital, and where the validity period of registration certificates are going to expire, the enterprises may have the chance to issue bonds abroad at an optional time later, so as to avoid the failure of the issue or the surge of issuance costs resulting from the pandemic and limited demand in the market. This may help enterprises save the cost of issuance to a certain extent.
Green channels for foreign exchange policies. According to the Notice on Further Strengthening the Financial Support for the Prevention and Control of the Epidemic of the Novel Coronavirus, jointly promulgated by the People’s Bank of China, the Ministry of Finance, the State Administration of Foreign Exchange (SAFE) and two other government authorities, and the Notice on the Establishment of Green Channels of Foreign Exchange Policies to Support the Prevention and Control of the Epidemic of the Novel Coronavirus promulgated by the SAFE, the quotas of the foreign debts borrowed by an enterprise can be cancelled, and the enterprise may submit its application online, provided that it is necessary for the prevention and control of the pandemic.
There are two modes for the administrative management of the quotas of foreign debts issued by domestic entities, namely, the “difference between the investment amount and the registered capital” management mode, and the “macro-prudential” management mode. Generally speaking, the amount of medium and long-term bonds that have been issued should be deducted from the quota.
During the pandemic prevention and control period, the limitation for the quota can be cancelled in case of the need for the prevention and control of the pandemic, thereby leaving enterprises with more flexibility to arrange. In addition, enterprises may apply for registration of foreign debts via the online government administration service system of the SAFE, without the need for onsite processing.
Matters needing attention
In order to maximize the interest and avoid legal risks, enterprises that intend to issue bonds abroad during the pandemic prevention and control period should pay attention to the following:
The favourable policies with applicable pre-conditions should be applied differentially. Certain favourable policies are applied under certain pre-conditions. They may only be applicable to enterprises funds that are used for pandemic prevention and control, or enterprises that are located in areas or engaged in the industries severely affected by the pandemic, for example, logistics and catering businesses that are seriously hit by the pandemic, or pharmaceutical, biological and non-banking financial industries that are closely related to pandemic prevention and control.
Enterprises should make use of the window period and reasonably arrange their financing plans. Enterprises intended for the issue of bonds abroad should learn about the applicable period of relevant policies and make detailed and feasible financing plans based on the capital circle of the enterprise and the industry in order to avoid an excessive amount of issuing bonds abroad in the current period, which may bring unrelieved repayment pressure to the operations of business, as well as reduce the default risk of due debts.
Enterprises should avoid the violation of existing regulations that continue being applicable. Although the government authorities have loosened some limitations during the pandemic prevention and control period, enterprises should continue following the existing procedures or provisions where regulations or restrictions have not been lifted. For the real estate industry, for example, the NDRC requires that the main purpose for real estate enterprises to issue bonds abroad shall be the repayment of due debts to avoid default.
As a whole, the special policies launched by the central government during the pandemic prevention and control period are undoubtedly beneficial for certain enterprises, and will help enterprises reduce losses in this special period. The authors expect that the authorities will further promulgate more encouraging and supporting policies, as well as more detailed operational guidelines. It is worth mentioning that enterprises, at the same time, should pay attention to inherent and potential risks in the issue of bonds abroad. They should also seek timely professional advice to avoid risks and fully protect their own rights and interests.
Jason Cheng is a senior partner and Mao Shengdi is an associate at Dentons.
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