New direction in overseas restructuring and financing

On 14 July 2014, the State Administration of Foreign Exchange (SAFE) issued the Notice on Issues Relevant to Exchange Control in Connection With Offshore Investment/Financing and Investment Round Tripping Carried Out Through Special Purpose Vehicles by Persons Resident in China (document No. 37) and two attachments: Operational Guidelines for Matters Relating to Exchange Control in Connection with Investment Round Tripping; and Application for Foreign Exchange Matters Relating to Direct Investment on the Capital Account.

Document No. 75, which had a material impact on the seeking of financing and listing abroad by domestic enterprises, was repealed by document No. 37 and the operational rules relating to exchange control in connection with investment round tripping of document No. 59 were superseded accordingly by the operational guidelines. Document No. 37 makes relatively large revisions compared to document No. 75.

Major changes

1. Revision of the definition of special purpose vehicle (SPV). The definition of SPV in document No. 37: (1) is no longer restricted to having “offshore financing” as its objective, and has now expanded to investment and financing as objectives, having added “investment”. In practice, in addition to companies established through investment round tripping with the objective of a listing, there are companies established through investment round tripping for other purposes (for example, purely carrying out offshore bond financing or establishment of an offshore holding platform), and such unlisted companies will be subject to administration by way of document No. 37; and (2) is no longer limited to “the assets or equity of a domestic enterprise”, but has been expanded to include “offshore assets or equity”.