Public Consultation on Proposed NDRC Rules Supporting Foreign Debt Issuance by High-Quality Enterprises

On 14 March 2024, China’s National Development and Reform and Commission (NDRC) issued a consultation paper soliciting public comments on its proposed rules providing support for the incurrence of the medium- and long-term foreign debt by high-quality enterprises (Proposed Rules).

The Proposed Rules simplify the process of foreign debt applications by “high-quality enterprises” and provide that the NDRC may approve such applications on an accelerated basis.

The public can access the Proposed Rules on the NDRC’s website (互动交流-国家发展和改革委员会 (ndrc.gov.cn)). Written public comments may be submitted online by 13 April 2024.

The Proposed Rules do not, however, specify a specific time for the NDRC to complete its review and approval. Pursuant to Administrative Measures for the Review and Registration of Mid-and-Long-Term Foreign Debt of Enterprises《企业中长期外债审核登记管理办法》(国家发展和改革委员会令第56号) (NDRC Circular 56) on 10 January 2023, which came into effect on 10 February 2023, the NDRC’s review and approval process may take up to three months, and under certain circumstances, longer.

The Proposed Rules provide the following preferential treatment for “high-quality enterprises”:

1. high-quality enterprises may apply for foreign debt quota for itself and its subsidiaries (group companies), and such foreign debt quota may be allocated among the group companies to be incurred in one or multiple tranches;
2. borrowers of international commercial loans may provide a letter of intent or equivalent document as part of application documents if they cannot provide a signed copy of loan agreements, which can be submitted after the initial drawdown;
3. issuers of offshore bonds may provide the information on the lead underwriter – including a due diligence report and the letter of undertaking to be provided by such lead underwriter – after the issuance of the offshore bonds if the lead underwriter has not been appointed at the time of the application for approval by NDRC;
4. high-quality enterprise applicants with a domestic credit rating of AAA and an international credit rating of A- or above may provide legal opinions issued by their in-house legal or compliance department in lieu of legal opinions issued by external law firms.

Under the Proposed Rules, enterprises must meet the following requirements to qualify for “high-quality enterprises”:

• They must comply with requirements of Circular 56;
• Business operations comply with national macro control and industry policies;
• Major operating and financial indicators are leading in their industry or region;
• Rated investment grade (BBB- and above) by an international rating agency or AAA by a domestic rating agency; and
• During the past three years, there was (i) no occurrence of default in connection with its onshore or offshore debt or delay in payment of principal or interest, (ii) no material violation of laws and regulations or not being blacklisted; (iii) no certified public accountants issuing negative opinions (or refusing to issue opinions) or qualified opinions on their financial statements unless material issues resulting from material impact due to the qualified opinions have been resolved.

The Proposed Rules provide that review and approval of foreign debt applications by real estate property developers and local government finance vehicles will continue to be governed by existing rules.

Given that the NDRC approves foreign debt applications within China’s annual national foreign debt quota, it remains to be seen how the preferential treatment to be offered to the “high-quality enterprises” will impact applications by other enterprises, particularly LGFVs.