Question raising

On January 5, 2023, the National Development and Reform Commission (hereinafter referred to as the "NDRC") issued the "Management Measures for the Review and Registration of Medium and Long Term External Debt of Enterprises" (Order No. 56 of the National Development and Reform Commission, hereinafter referred to as the "56 Document"), which was implemented on February 1, 2023, And the "Notice of the National Development and Reform Commission on Promoting the Reform of the Registration and Filing System for Enterprise Issuance of Foreign Debt" (FGWZ [2015] No. 2044, hereinafter referred to as the "2044 Document") has been abolished. On February 9, 2023, the National Development and Reform Commission simultaneously released the answers to common questions about enterprises borrowing medium and long-term foreign debts and the "Guidelines for Approval of Enterprises Borrowing Medium and Long Term Foreign Debts" (collectively referred to as the "56 supporting documents"). Please provide an explanation of the main content and related changes of Document No. 56 and its supporting documents.

Lawyer Interpretation

Document No. 56 and its supporting documents are currently the main regulatory documents of the National Development and Reform Commission for medium and long-term external debt of enterprises, clarifying the relevant rules of regulation and matters related to review and registration. The main content and related changes are as follows:

1. Clarify the regulatory methods for reviewing and registering external debts of enterprises

To effectively prevent foreign debt risks, the No. 56 civilization stipulates that enterprises should complete the registration procedures for medium to long-term foreign debt borrowing before borrowing foreign debt. Enterprises must complete the registration procedures and obtain the "Certificate of Registration for Enterprise Borrowing Foreign Debt Review" before the agreed first withdrawal. Otherwise, they cannot borrow foreign debt.

At the same time, it is clarified that the National Development and Reform Commission shall supervise the implementation of enterprises' borrowing of foreign debts during and after the process, that is, enterprises shall submit information on borrowing foreign debts within 10 working days after borrowing each foreign debt; The corresponding foreign debt borrowing situation should be submitted within 10 working days after the expiration of the validity period (one year from the date of issuance) of the "Enterprise Borrowing Foreign Debt Review and Registration Certificate"; Within the first 5 working days of the end of January and July each year, report the use of foreign debt funds, repayment of principal and interest, planned arrangements, and main business indicators.

2. Clarified the scope of application subjects for external debt review and registration of enterprises

According to Document No. 56 and supporting documents, the application subject for external debt review and registration of enterprises is "domestic enterprises in the People's Republic of China and their controlled overseas enterprises or branches". The specific application subject is adjusted from "the group headquarters (head office, head office) of central management enterprises and financial institutions, and local enterprises (including financial institutions)" specified in Document No. 2044 to "the headquarters (head office, head office) of domestic holding enterprises", And overseas enterprises shall not be the subject of application.

3. Clarified the qualification of the applicant for external debt review and registration of enterprises

The qualification of enterprises applying for medium and long-term foreign debt registration has been confirmed in the document No. 56. Enterprises borrowing foreign debt should meet the following basic conditions: (1) legally established and existing, operating in compliance with regulations, and having a sound and well functioning organizational structure; (2) There is a reasonable demand for external debt funds, the purpose of which meets the aforementioned regulations, the credit status is good, the ability to repay debts, and a sound external debt risk prevention and control mechanism; (3) The enterprise, its controlling shareholders, and actual controllers have not committed any criminal offenses such as embezzlement, bribery, embezzlement of property, misappropriation of property, or disruption of the socialist market economy order in the past three years, or have been investigated in accordance with the law due to suspected criminal or major illegal activities.

4. Specify the scope of "debt instruments" in the registration of external debt audit for enterprises

The scope of application for registration of corporate borrowing of foreign debts is "debt instruments with a maturity of 1 year or more, denominated in local or foreign currency, and subject to agreed repayment of principal and interest". The scope of "debt instruments" is more specific than the "overseas issuance of bonds, medium and long-term international commercial loans" stipulated in Document 2044, Including but not limited to "senior bonds, perpetual bonds, capital bonds, medium-term notes, convertible bonds, exchangeable bonds, financing leases, and commercial loans". The foreign debt business within a one-year period is directly managed by the State Administration of Foreign Exchange.

5. Domestic enterprises indirectly borrowing foreign debts overseas also apply to Document No. 56

The document No. 56 is also applicable to domestic enterprises indirectly borrowing foreign debts overseas, that is, enterprises with main business activities in China, issuing bonds or borrowing commercial loans overseas in the name of enterprises registered overseas based on the equity, assets, income or other similar interests of domestic enterprises. The supporting document No. 56 clarifies the definition of "enterprises with main business activities within China", which should follow the principle of substance over form, and be judged from financial indicators, operating conditions, and other aspects. For example, if any indicator of operating income, net profit, total assets or net assets of a domestic enterprise accounts for more than 50% of the audited consolidated financial statements of the issuer/borrower during the same period, and the main links of business activities are carried out in China or the main premises are located in China (or if the majority of senior management personnel responsible for business management are Chinese citizens or have their habitual residence in China), the application should be made in accordance with regulations.

6. Relevant regulations on the purpose of borrowing foreign debts by enterprises

According to Document No. 56, enterprises can independently decide to use foreign debt funds domestically and internationally based on their own credit situation and actual needs, and their use should meet the following conditions: (1) not violate Chinese laws and regulations; (2) Not threatening or damaging China's national interests, economy, information and data security; (3) Not violating China's macroeconomic regulation goals; (4) Not violating China's relevant development plans and industrial policies, and not adding implicit debts to local governments; (5) It shall not be used for speculation, speculation, or other activities. At the same time, it is stipulated that except for banking financial enterprises, they shall not lend to others, except for those that have been specified and approved in the application materials for foreign debt review and registration. This means that Document No. 56 no longer has the previous restriction on the use of "no compensation for losses", and increases the possibility of using enterprise borrowed funds for borrowing when the application materials for foreign debt review and registration have specified the use as borrowing and have been approved.

At present, the deadline for enterprises to borrow medium and long-term foreign debts has been greatly extended, with the adjustment from "within 7 working days from the date of acceptance" stipulated in Document 2044 to "within 3 months from the date of acceptance". Therefore, enterprises should leave sufficient time before borrowing foreign debts to complete the verification and registration procedures for borrowing medium and long-term foreign debts.