New SAFE cross-border security rules will ease restrictions on offshore bond offerings and other offshore financings by Chinese companies.

Introduction –

On May 19, 2014, China’s State Administration of Foreign Exchange (the SAFE) released the Provisions on the Administration of Foreign Exchange for Cross-Border Security (the New Cross-Border Security Provisions) and the Administration of Foreign Exchange for Cross-Border Security Implementation Guidelines (the Implementation Guidelines, together with the New Cross-Border Security Provisions, the New SAFE Rules). The New SAFE Rules came into force on June 1, 2014, and replaced the then existing set of rules governing the provision of cross-border security, including the Notice on Issues Relating to the Administration of Offshore Security Provided by Domestic Entities issued by the SAFE on July 30, 2010 (Circular 39).

The Peoples’ Republic of China (PRC) regulatory restrictions on the granting of guarantees and other types of security by onshore companies had been limiting Chinese companies’ ability to access offshore financing. Among other changes, the New SAFE Rules allow PRC onshore banks and companies to guarantee, or provide other types of security in connection with, offshore bond offerings and other offshore financings without being subject to an annual quota or the need for approval by the SAFE, provided the banks meet certain conditions. This move represents a positive regulatory development for Chinese companies looking to raise financing offshore and is expected to facilitate offshore bond offerings and other offshore financings by Chinese companies. This Client Alert focuses on the key provisions of the New SAFE Rules relating to onshore credit support for offshore bond offerings and other offshore financings (????) by Chinese companies.