Letters of credit (L/Cs) or 'keep well' agreements will no longer be needed for Chinese companies looking to tap foreign lenders.

Chinese companies are now looking forward to raising more debt offshore after China's foreign exchange regulator approved a new funding structure that makes it easier and cheaper to raise funds abroad.

Onshore guarantees

China's regulator has now said that domestic companies can now raise cash abroad through offshore bonds secured by onshore guarantees.

The change, which lowers the cost of funding compared with raising an L/C to enhance a bond offering, has reportedly sparked more interest in offshore borrowings.

The alternative way to enhance an offshore bond prior to the new rules was to issue a keep well agreement, a legal agreement between a parent company and a subsidiary to ensure solvency and financial stability for the duration of the agreement.


Chinese companies prefer raising debt offshore because the market is much deeper and more liquid.

However, those wanting to raise money offshore for the purpose of bringing it back to

China could previously only do so using relatively weak legal agreements that made it expensive to borrow.

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