news

Cailianshe News, July 24 (Editor: Yang Bin)Recently, the National Development and Reform Commission issued the Notice on Supporting High-quality Enterprises to Borrow Medium- and Long-term Foreign Debt to Promote High-quality Development of the Real Economy (NDRC Foreign Investment Regulation [2024] No. 1037). (hereinafter referred to as the Notice). The Notice simplifies the review requirements and procedures for high-quality enterprises to issue foreign debt, and strictly defines the standards for high-quality enterprises. Industry insiders said that the NDRC optimizes foreign debt management and services, and supports high-quality enterprises to more efficiently and conveniently coordinate the use of foreign debt funds to serve the high-quality development of the real economy.

Rating agency Zhongzheng Pengyuan told Cailianshe that according to its statistics, the current stock of my country's foreign debt is 1.27 trillion US dollars, of which medium- and long-term accounts for 87.8%. The "Notice" will help improve the efficiency of reviewing the issuance of foreign debt by high-quality domestic enterprises, and the issuance scale may increase. Since high-rated entities have relatively good domestic financing channels, in the current uncertain situation, the impact may be relatively limited in the short term. In the long run, it will be beneficial for high-level entities to expand overseas financing.

Support high-quality enterprises to issue foreign debt, and add the requirement of "ranking in the top five in the industry in terms of operating income in the past year"

The NDRC's "Notice" stated that it actively supports high-quality enterprises with significant industry status, good credit, and a leading role in promoting high-quality development of the real economy to borrow foreign debt. According to the "Notice", to be defined as a high-quality enterprise, it must meet five conditions:

(1) Comply with the relevant provisions of the Measures for the Administration of Review and Registration of Medium- and Long-Term External Debt of Enterprises (Order No. 56 of 2023 of the National Development and Reform Commission);

(2) The production and operation are in compliance with the national macro-control and industrial policies;

(III) The operating income scale ranked in the top five in the industry in the past year;Assets and liabilitiesThe indicators are better than the industry average;

(iv) The enterprise's international credit rating is investment grade (BBB- and above) or its domestic credit rating is AAA;

(V) In the past three years, (1) there have been no defaults on domestic or foreign debts and no continuous delays in the payment of principal and interest; (2) there have been no major violations of laws and regulations and the company has not been included in the list of serious defaulters; and (3) the company’s financial statements have not been issued an adverse opinion or a disclaimer of opinion by a certified public accountant. If a qualified opinion has been issued by a certified public accountant, the significant impact of the matters covered by the qualified opinion has been eliminated.

At the beginning of 2023, the National Development and Reform Commission issued the "Administrative Measures for the Review and Registration of Medium- and Long-Term Foreign Debt of Enterprises" (National Development and Reform Commission Order No. 56 of 2023, referred to as "Order No. 56"), which has made clear and detailed provisions on the review and registration procedures for enterprises issuing foreign debts, including the application time, subject, channel, materials and other requirements for the review and registration, and improved the foreign debt review and registration network system.

In March this year, the NDRC publicly solicited opinions on the "Notice of the National Development and Reform Commission on Supporting High-Quality Enterprises to Borrow Medium- and Long-Term Foreign Debt to Promote High-Quality Development of the Real Economy (Draft for Comments)" (hereinafter referred to as the "Draft for Comments").

Zhang Qi, a senior researcher at the R&D department of China Securities Credit R&D, told Cailianshe that the content of the official version of the Notice is basically the same as the Draft for Comments. In terms of defining "high-quality enterprises", it is required to comply with national macroeconomic control and industrial policies, have excellent main operating and financial indicators in the industry, and have a high credit rating. At the same time, the National Development and Reform Commission will adjust the definition of high-quality enterprises in due course based on the situation. However, compared with the Draft for Comments, the Notice adds the requirement of "ranking in the top five in the industry in terms of operating income in the past year".

Zhou Yiqin, founder of Guanshao Consulting and a senior expert in financial regulatory policies, said that based on Order No. 56, the Notice has refined the definition criteria for "high-quality enterprises". The Notice has a high positioning for high-quality enterprises, requiring "the scale of operating income in the past year to rank in the top five in the industry", etc. The leading enterprises in the industry are more likely to receive this policy benefit. After broadening the cross-border investment and financing channels for high-quality enterprises, it will lay a good foundation for accelerating the implementation and promotion of the medium- and long-term foreign debt utilization policy.

It is worth noting that the notice pointed out that "real estate enterprises and local state-owned enterprises that undertake local government financing functions will still be managed in accordance with the original regulations when applying for foreign debt review and registration."

Zhang Qi pointed out that overseas financing of real estate and urban investment is not subject to this "Notice". The issuance of real estate bonds is mainly for private real estate, and the purpose of financing is mainly to borrow new to repay old. Since March, the overseas bond issuance of urban investment platforms has been tightened, and district and county-level platforms can only borrow new to repay old in principle. Provincial and prefecture-level platforms that are not on the list of urban investment of relevant departments have a certain possibility of new financing, but from the actual issuance, most overseas bond issuance platforms belong to regions with heavy debt repayment pressure, and the main purpose of financing is to borrow new to repay old.

Simplify the requirements and procedures for external debt review, and allow for “incomplete application” under certain conditions

For high-quality enterprises applying for external debt review and registration, the National Development and Reform Commission will implement special reviews based on the current management, appropriately simplify relevant requirements, and speed up the application process. Specific measures include:

(1) An enterprise may submit an application for an annual planned consolidated external debt quota including its subsidiaries;

(II) If an applicant is unable to provide a signed loan agreement for the time being but can provide a letter of intent from a lending institution when applying for an international commercial loan, the application may be processed with "incomplete documents"; the enterprise should provide the relevant loan agreement when submitting information to the National Development and Reform Commission after the first loan withdrawal;

(III) If the application for issuing overseas bonds has not yet determined the lead underwriter, the application may be processed with "incomplete documents"; the enterprise should provide the lead underwriter's due diligence report and authenticity commitment letter when submitting information to the Commission after the issuance of each overseas bond;

(IV) For enterprises with a domestic credit rating of AAA and an international credit rating of A- or above, the legal opinions of professional institutions in the application materials may be issued by the enterprise's internal legal or compliance department.

Chen Dapeng and Wang Zerong, researchers at the Institute of Foreign Economic Research at the Chinese Academy of Macroeconomic Research, believe that the above regulations can not only achieve the necessary audit quality requirements, but also reduce the institutional costs for high-quality enterprises to apply for medium- and long-term foreign debt quotas, thereby increasing the enthusiasm of high-quality enterprises to better utilize foreign debt resources and optimize the capital allocation structure at home and abroad.

In addition, the Notice also encourages local governments to take the initiative to provide services, actively support and guide high-quality enterprises in the region to reasonably carry out medium- and long-term foreign debt financing, improve the efficiency of fund use, and promote the high-quality development of the real economy. At the same time, the Notice requires the improvement of the supervision of high-quality enterprises in the process of borrowing foreign debt, the coordination of development and safety, and the effective prevention of foreign debt risks.

The efficiency of high-quality corporate foreign debt issuance has improved, but financing costs are still the main consideration

High-level opening up is one of the important contents of building a high-level socialist market economic system. In October 2023, the Central Financial Work Conference made work arrangements on "enhancing the convenience of cross-border investment and financing".

Zhang Qi pointed out that under this background, the NDRC's optimization of foreign debt management and services will help promote my country's effective use of foreign capital and expand two-way opening up. It will also actively play the dual regulatory functions of the total amount and structure of corporate medium- and long-term foreign debt review and registration, and support high-quality companies to more efficiently and conveniently coordinate the use of foreign debt funds to serve the high-quality development of the real economy.

Zhou Yiqin believes that for Chinese companies going overseas, the international economic situation is unpredictable and the internal macroeconomic environment is equally complex and changeable. The NDRC's policies are aimed at enhancing the global competitiveness of high-quality companies and helping them to properly utilize both domestic and foreign financial resources.

Chen Dapeng and Wang Zerong said that with the implementation of the "Notice", the efficiency of review and registration of medium- and long-term foreign debt applications by high-quality enterprises will be greatly improved, which will be conducive to further promoting the facilitation of cross-border investment and financing, broadening channels for foreign investment in China, and helping enterprises optimize the allocation of domestic and foreign factors and resources.

According to Wind data from China Securities Credit Rating, as of July 24, 2024, the stock of foreign debt is 1.27 trillion US dollars, of which the stock of Chinese financial bonds is 331.678 billion US dollars, accounting for 26.0%; the stock of Chinese real estate bonds is 163.737 billion US dollars, accounting for 12.8%; the stock of Chinese urban investment bonds is 104.897 billion US dollars, accounting for 8.2%. The scale of medium- and long-term foreign debt is about 1119.3 billion yuan, accounting for 87.8%.

Zhang Qi believes that the Notice will help improve the efficiency of reviewing the issuance of foreign debt by high-quality domestic enterprises, but at this stage, the promotion effect on the issuance of foreign debt by high-quality domestic enterprises is limited. For high-quality enterprises defined by the National Development and Reform Commission, the cost of issuing RMB bonds in China is lower than the cost of overseas financing at this stage. Except for some enterprises that need US dollar or overseas RMB financing due to business needs, RMB financing in China is still the preferred financing method.

Its further interpretation pointed out that the huge difference in financing costs between domestic and foreign bonds is mainly reflected in offshore US dollar bonds, which mainly depends on the US dollar interest rate. The performance of offshore RMB bonds is relatively differentiated. For high-quality enterprises, the cost of offshore RMB bonds is higher than that of domestic bonds, but the difference is not as obvious as that of US dollar bonds and RMB bonds. In addition, the financing subjects of high-coupon offshore RMB bonds are mainly urban investment companies, most of which are restricted in domestic financing. In March this year, the overseas bond issuance of urban investment platforms was tightened, and the issuing entities could not be on the 3899 list. In principle, district and county-level platforms can only borrow new to repay old debts. According to relevant rules, provincial and prefectural-level platforms that are not on the list have a certain possibility of new financing, but from the actual issuance, most overseas bond issuance platforms belong to regions with heavy debt repayment pressure, and the purpose of financing is mainly to borrow new to repay old debts.