Bond issuance regulations for Chinese companies listed overseas

The year 2023 marked the beginning of China’s systematic and regular oversight of overseas listings of Chinese enterprises, and those already listed abroad. With relevant policies in place for more than a year, this article aims to provide insight and practical experience regarding regulatory changes in bond issuance by overseas listed companies.

Former practice

Before 2023, the regulatory policy most directly related to bond issuance by companies listed overseas was the Notice on Promoting the Reform of the Filing and Registration System for Enterprises Issuing Foreign Debts issued by the National Development and Reform Commission (NDRC) in 2015.

The notice replaced the previous approval-based system for overseas bond issuance with a filing-based registration system, which required domestic enterprises and overseas entities or branches under their control to apply for filing and registration with the NDRC for bonds issued overseas with a maturity of more than one year, or medium to long-term international commercial loans. They were also required to submit issuance information to the NDRC within 10 working days of each issuance.

Latest response

Recent years have seen changes in both internal and external environments for Chinese enterprises’ overseas financing. Along with the advanced financing needs, expanded financing channels and diversified financing forms, there have been growing financing risks and debt defaults, rendering the notice inadequate for the new circumstances.

In response, the NDRC issued the Administrative Measures for the Review and Registration of Medium to Long-term Foreign Debts of Enterprises on 5 January 2023, which took effect on 10 February 2023, to replace the notice. Under the measures, the filing-based registration system for overseas bond issuance is replaced by a review-based registration system, emphasising risk prevention, stringent review standards and improved management systems.

It also specifies the issuance of foreign debts as an administrative licensing item. For bond issuance by companies listed overseas, the measures introduce specific provisions regarding review and registration materials, structure, and the responsibilities of intermediary institutions.

Review and registration. In addition to the enterprise’s letter of commitment, financial reports and records of its application for medium and long-term foreign debt issuance are required by the notice. The measures also require the due diligence report and the letter of authenticity issued by the underwriting institution, as well as the legal opinions and letters of authenticity from intermediary institutions (typically law firms).

Structure. The measures define and identify scenarios such as “indirect debt issuance” and “control”, extending regulation over foreign debts incurred under variable interest entity (VIE) structures or offshore special purpose vehicle (SPV) companies. This marks the beginning of across-the-board regulation of foreign debt issuance.

Responsibilities of intermediary institutions. The measures reinforce the legal responsibilities of intermediaries in overseas bond issuance by requiring underwriting institutions and law firms to submit reports, legal opinions and letters of commitment. In addition to the disciplinary measures for issuing enterprises stipulated in the notice, the measures also introduce penalties for intermediary misconduct.

Compared to the notice, the measures impose more extensive requirements on the documentation and specification of foreign debt review and registration. For eligible overseas bond issuance projects that are required for the review-based registration, the Enterprise Foreign Debt Review and Registration Certificate, issued by the NDRC, is a crucial prerequisite for subsequent filings with the China Securities Regulatory Commission ( CSRC), as well as for foreign exchange registration, account opening, fund transfers and currency exchange.

Enterprises are suggested to allow sufficient time for the review-based registration procedures under the measures, and initiate the procedures at the earliest convenience.

New regulations

On 17 February 2023, the CSRC issued new filing regulations for domestic enterprises’ overseas issuance and listing, effective from 31 March 2023. The new regulations, comprising the Trial Administrative Measures of Overseas Security Offering and Listing by Domestic Enterprises and applicable guidelines from the CSRC, lay out a comprehensive and unified filing system for all types of overseas issuance and listing by domestic enterprises.

In accordance with the trial measures, overseas-listed companies issuing convertible bonds, other equity-based securities or bonds possibly related to newly issued shares (the securities bond) must file with the CSRC within three working days of the issuance. For multiple issuances, the initial issuance must be filed within three working days, detailing the total number of securities to be issued, with subsequent issuances reported to the CSRC upon completion.

For such filings, overseas-listed companies must submit a filing report to the CSRC, with legal opinions issued by a Chinese law firm. The overseas-listed company, the participating securities firm and the Chinese law firm must, respectively, submit a letter of commitment to the CSRC, ensuring the authenticity, accuracy and completeness of the filing materials, and accepting corresponding legal responsibilities.

The Enterprise Foreign Debt Review and Registration Certificate, issued by the NDRC, serves as a key reference in the legal opinions regarding compliance with foreign debt administration procedures. The trial measures also clarify relevant responsibilities, stating that any securities firm or securities service institution failing to perform due diligence, resulting in false records, misleading statements or significant omissions, may face correction orders, warnings, fines and other penalties from the CSRC, or authorities under the State Council.

For overseas-listed companies, the regulatory responsibility primarily lies with the exchanges where they are listed and the securities regulatory authorities of those regions or countries. Thus, the CSRC only conducts post-issuance supervision for overseas securities or securities bonds issued by overseas-listed companies.

Given the intensified regulation introduced by the CSRC, overseas-listed companies are recommended to avoid possible regulatory liabilities by consulting relevant intermediaries before issuing securities or securities bonds abroad.

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Wang Jin is a partner at Han Kun Law Offices. She can be contacted by phone at +86 10 8525 5542 and by email at jin.wang@hankunlaw.com
Patrick Hu is an associate at Han Kun Law Offices. He can be contacted by phone at +86 21 6080 0912 and by email at patrick.hu@hankunlaw.com