On 14 September 2015, the National Development and Reform Commission (NDRC) issued the Notice on Reforming the Recordal and Registration System for the Overseas Debt Issuance by Enterprises (the Notice). After the issuance of the Notice, China’s overseas debt administration changed from the approval system to the total quantity control recordal system. During the past few years, the scale of overseas debt has been increasing.
Chinese enterprises currently employ three principal models to issue offshore bonds: (1) direct issuance by a domestic enterprise, i.e., a domestic enterprise issues the offshore bonds directly; (2) indirect issuance by a domestic enterprise, i.e., an offshore subsidiary of a domestic enterprise issues the bonds, usually with the guarantee or other means of credit enhancement provided by the domestic enterprise; or (3) issuance of offshore bonds by a small red-chip enterprise.
The overseas issuance of debt by a small red-chip enterprise is a special type of “overseas debt issuance by a Chinese enterprise”. The reason is that from the perspective of the literal meaning of the words, the entities that the Notice regulates are “domestic enterprises and the offshore enterprises or branches controlled by them”. Therefore, when the Notice was initially issued, those in the industry generally did not consider the overseas issuance of debt by small red-chip enterprises falling within the scope of the Notice’s regulation.
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Ling Tezhi and Du Linhong are partners at Jingtian & Gongcheng