Fitch: Chinese Offshore Debt Issuances Face Limitations Despite New Rules

New rules introduced by Chinese regulators in 2015 may help to reduce structural subordination risk for Chinese corporates' offshore creditors, but these rules have limitations and may only benefit a small pool of corporates in the short-term, Fitch Ratings says in a special report.

Fitch expects that the National Development and Reform Commission (NDRC) may provide "window guidance" in implementation of the new registration-based scheme, introduced in September 2015, for offshore debt issuance by Chinese corporates. Fitch believes the registration-based scheme will favour leading corporates, especially state-owned enterprises (SOEs), in government-supported sectors.

The State Administration of Foreign Exchange (SAFE) eased the regulatory restrictions on cross-border guarantees in May 2015, but still prohibits the proceeds from offshore debt issuance under onshore guarantees to be repatriated back to China.

Given the limitations of these new rules, keepwell deeds supplemented by equity interest purchase undertaking deeds and/or liquidity support covenant deeds may remain popular and efficient structures for issuers who wish to repatriate funds to China, although the new NDRC registration rules apply to offshore debt issued under keepwell deeds from onshore corporates as well.

The full report, titled "Common Structures of Chinese Offshore Debt Issues: New Regulations Bear Monitoring as Top Chinese Corporates Seem Tipped for Gains" is available on www.fitchratings.com.