In cross-border finance transactions, legal opinion letters are very common. A legal opinion will include sections on background, documents reviewed, assumptions, opinions, qualifications and reliance. Legal opinions are usually given by the lender's legal counsel. Choice of foreign law is valid and binding, and would be given effect by Chinese courts except to the extent that it would be manifestly incompatible with public policy or that the choice of law was made with the intention of evading Chinese law, which, in the absence of the stated choice of law, would have invalidated such obligations.
A foreign court judgment may be enforced in China if there is a treaty or an established reciprocity mechanism between China and the jurisdiction of the foreign court. China is a member of the New York Convention so an arbitration award will be enforceable in China. Trading of bilateral loans used to be popular among banks, particularly before when there was a loan-to-deposit ratio that did not exceed 75 per cent.
This ratio was repealed by an amendment to the Commercial Banking Law in Therefore, trading of bilateral loans is less common now. When trading bilateral loans, banks are required to comply with the principle of authenticity and complete transfer. Parties should not circumvent regulation by way of signing repurchase agreements, spotting buyout options or signing forward repurchase, agreements. Regulators specifically focus on the transfer of credit assets between banks and trust companies to avoid regulatory restrictions.
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There is no concept of novation under Chinese law. For an assignment of outstanding loans without the commitment of new loans, a notice to the obligor will be sufficient. For transfer of commitment, the transferee shall sign a new agreements with the borrower.
As the primary market of syndicated loans is yet to be promoted, it will take time to develop the secondary market of syndicated loans. Regulatory authorities together with industry associations are actively promoting the development of the syndicated loans market. The China Banking Association has set up rules and issued standard documents to facilitate trading of syndicated loans.
The transfer of non-performing loans is now vigorously promoted by Chinese authorities, which is based on China's supply-side reform and mainly aimed at reducing the leverage ratio. There are several different methods, among which debt-to-equity swap is highly recommended. Owing to the restrictions of the Commercial Banking Law, debt-to-equity swap of credit assets must be carried out through implementing agencies, which are usually set up by a commercial bank or local government.
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Limits on the lending interest rate is set up by the SPC through a judicial interpretation. The upper limit is 36 per cent per annum. Any interest exceeding the upper limit is not valid and the court will uphold borrower's requests to refund any interest exceeding the upper limit if it has been paid. In addition, there is an alarm rate, which is 24 per cent per annum.
For interest exceeding 24 per cent but below the upper rate of 36 per cent, the court will uphold neither a lender's claim of payment by the borrower if it has not been paid nor a borrower's claim of refund if it has been paid. As China's economic growth slows down, non-performing loans NPLs continue to rise. According to the regulatory indicators released by the banking regulator, CBIRC, the balance of commercial banks' NPLs reached 2 trillion yuan by the end of , accounting for 1.
Supportive policies have been consecutively enacted by the government in recent years so that more investors are given opportunities to participate in China's NPLs market.
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Fake equity investment is an innovative method of investment, which makes debt in the name of equity investment. It is typically structured by a repurchase agreement, which promises a guaranteed redemption.
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This makes equity investment essentially a fixed-income debt finance. Fake equity investment is commonly used by trust companies, private equity funds and insurance companies, etc. Considering the characteristics and risks of the fake equity investment, regulators have taken measures to restrict it. The yuan is not fully convertible into foreign currency at present.
Payments in foreign currency from China to offshore and the receiving of foreign currency from offshore fall under the supervision of SAFE. Foreign debt means debt owed by a domestic institution to a non-resident in the form of foreign currency. NDRC filing is comparatively complicated and therefore most Chinese borrowers borrow short-term loans with a tenor less than one year , which are subject to SAFE registration only.
There is a limit for borrowing foreign debt for a Chinese borrower. Currently, the limit is twice a borrower's net assets or for a foreign-invested company the difference between its total investment and registered capital. Provision of security by a Chinese entity in favour of a foreign lender outbound security is subject to SAFE's administration.
SAFE appealed quota for outbound security in , but a non-financial entity shall register the outbound security at SAFE within 15 business days of the security document being executed. If there is any previous outbound security that has been enforced before the offshore obligor indemnified the Chinese security provider, the Chinese entity will not be allowed to provide any new outbound security unless otherwise approved by SAFE.
Deleveraging and the opening-up of the financial industry are two key themes of in China's banking sector. Owing to the efforts carried out by regulators, the overall enterprise debt ratio has been decreased so as to mitigate overall financial risks. It is expected that regulators will continue to reduce leverage ratio and monitor risks in the debt market.
As for further opening-up of the financial market, lots of the measures proposed by the Chinese government in recent years were implemented by the end of In , some more measures will come into force such as the Administrative Regulations on Foreign-Invested Banks. It is also expected that more opening-up measures will be issued in relation to trust, financial leasing, automobile finance, currency brokerage and consumer finance business. These reforms will bring more diversified products to the lending market.
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The Transport Finance Law Review. Editor Jan Putnis. Banking regulation continues to confound the idea that views about how banks should be regulated will eventually settle down to an orthodoxy broadly accepted throughout the world. This edition covers 37 countries and territories in addition to our usual chapters on international initiatives and the European Union.
There must be a feeling among many of the authors that banking regulation is a subject that will never settle down; that it will never return to being the rather duller subject that it was before it became a political issue more than 10 years ago. Editor Harry Theochari. Norton Rose Fulbright. This book is intended to provide the legal industry with a guide to transport finance today, in each of the key jurisdictions globally in which aircraft, rolling stock and ships are financed.
Furthermore, documents containing a power of attorney should also be executed under seal. As a matter of common practice, security documents are executed as deeds to prevent the document from being invalid due to lack of consideration. Documents may be executed using a power of attorney or in counterparts. Notarisation is not required, but this may be done for authentication purposes.
If a person is acquiring or proposing to acquire shares in a company incorporated in Hong Kong, the company and any Hong Kong incorporated subsidiaries must not give any financial assistance directly or indirectly for the purpose of the acquisition before or at the same time as the acquisition takes place. Also, if a person has acquired shares in a company incorporated in Hong Kong, and any person has incurred a liability for the purpose of the acquisition, the company or any of its subsidiaries must not give financial assistance directly or indirectly for the purpose of reducing or discharging the liability.
In other words, refinancing of loans made available for financing the acquisition is likely to be caught by this prohibition as well. Certain exceptions apply to this prohibition. This prohibition may also not apply if the company follows one of the three sets of relaxation procedures. The choice of which one to follow depends on the structure of the relevant transaction and timing requirements.
If a company unlawfully gives financial assistance, the validity of the financial assistance and of any transaction connected with it is not affected solely by reason of the contravention of the prohibition on the giving of the financial assistance. However, the company and its responsible persons may be the subject of criminal sanctions if it is found that the restrictions have been breached.
The financial assistance prohibition does not apply where the shares acquired are only of a sister company.