Chinese regulators are simplifying foreign-exchange rules to make it easier for companies to guarantee offshore debt offerings.

The new rules will apparently make it less likely that issuers will need to use standby letters of credit (L/Cs) or guarantees to strengthen offshore offerings.

Speedier process

The new rules, which become effective on 1 June 2014, enable China's onshore companies to register cross-border payment guarantees at the same time a deal is struck.

Onshore guarantors will be able to register their guarantees with the State Administration of Foreign Exchange (SAFE) within 15 days of signing agreements.

Credit enhancement

Under the old rules, onshore Chinese companies had to seek approval from SAFE, which could take as long as a year to obtain.

To speed this process, issuers added so called credit enhancements, which used standby L/Cs and guarantees as well as keepwell agreements or equity interest purchase arrangements to support overseas transactions.

Concerns

The authorities and investors have been concerned over the use of standby L/Cs to guarantee Chinese bond offerings since last year.

They say the structure's reliability has yet to be tested and predicted the rapid growth of L/C enhanced bond issuances may prompt regulators to curb the practice (DC World News, 28 October 2013)

The new rules have been seen as a policy shift that is likely to boost bond issuance in China.

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