Introduction

On 25 September 2018 the People's Bank of China (PBC) and the Ministry of Finance jointly issued the Interim Measures for the Administration of Bond Issuance by Overseas Institutions in the National Inter-bank Bond Market (Notice [2018] 16), which came into effect on the same date. As a result of the new measures, the Interim Measures for the Administration of Issuing Rmb Bonds by International Development Institutions (PBC, Ministry of Finance, National Development and Reform Commission and China Securities Regulatory Commission Notice [2010] 10) have been formally abolished.

Bonds which are renminbi yuan denominated and issued by non-Chinese entities in the China interbank bond market (CIBM) are known as 'panda bonds'. The new measures further clarify the qualification, application procedure, bond issuance, registration, custody and settlement and information disclosure requirements for overseas institutions that issue panda bonds, as well as the requirements governing:

  • the opening of accounts;
  • fund exchange and remittance;
  • investor protection; and
  • other matters.

Improvements

The new measures have made the following improvements to promote the opening up of the CBIM.

Uniform rules for bond issuance by different overseas institutions The old measures applied only to bond issuance by international development institutions operating in the CIBM. No clear rules applied to bond issuance by other overseas institutions, even though foreign sovereigns, overseas financial institutions and non-financial enterprises also issue bonds in the CIBM. Based on pilot programmes and international practice, the new measures provide clear, uniform rules for bond issuance by other overseas institutions, including foreign sovereigns, international development institutions, overseas financial institutions and non-financial enterprises.

Approval and registration In order to issue bonds, overseas financial institutions must obtain approval from and submit to the PBC their:

  • updated prospectus;
  • credit rating report, if any;
  • underwriting agreement;
  • legal opinion; and
  • other relevant documents prior to the issuance and pricing.

Foreign sovereigns, international development institutions and non-financial enterprises must apply to the National Association of Financial Market Institutional Investors (NAFMII) for registration.

Qualifications Foreign sovereigns and international development institutions must have bond issuance experience and an adequate debt servicing capacity.

Overseas financial institutions must:

  • have paid-in capital of no less than Rmb1 billion or an equivalent amount in other currencies;
  • have a sound corporate governance mechanism and risk management system;
  • be in a stable financial condition with good credit and have been profitable for the past three years;
  • have bond issuance experience and an adequate debt servicing capacity;
  • be effectively supervised by the financial regulatory authorities of the country or region in which they are located and have risk supervision indicators that comply with the authorities' regulations.

Notably, the new measures do not address bond issuance by overseas non-financial enterprises. The NAFMII is expected to issue specific guidelines on bond issuance by these enterprises in the near future.

Credit rating Overseas institutions are no longer required to issue credit rating reports to undertake bond issuance.

Accounting principles According to the new measures, overseas institutions are not required to adopt the Chinese generally accepted accounting principles (GAAP). Instead, they can adopt other accounting principles as long as they disclose the key differences between these and the Chinese GAAPs.

Language Issuance documents need not be written in Chinese; rather, they can be written in simplified Chinese or translated into simplified Chinese from other languages.

Applicable laws Under the old measures, Chinese laws applied to bond issuance by international development institutions. However, the new measures remove this mandatory provision regarding the applicable laws. As such, overseas institutions can now choose the laws which apply to their bond issuance.

Comment

The new measures are an important step towards opening up the CBIM. They improve the publicity of the bond issuance mechanism for overseas institutions, enhance issuance efficiency and promote bond issuance by overseas institutions. They also:

  • improve the institutional arrangements for bond issuance by overseas institutions in the CIBM;
  • promote the integration of the domestic institutional rules with international standards; and
  • contribute to the globalisation of the Chinese bond market.

For further information on this topic please contact Wu Jiejiang at Jingtian & Gongcheng by telephone (+86 10 5809 1000) or email ([email protected]). The Jingtian & Gongcheng website can be accessed at www.jingtian.com.

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