Warning for red chips regarding foreign debts

In the article titled “Risk warning to companies issuing bonds in overseas markets” published on its official website on 12 June 2017, the National Development and Reform Commission (NDRC) criticized China Water Affairs Group, China South City Holdings, Mingfa Group (International), Ping An Real Estate and China Mengniu Dairy for failure to complete upfront filing and registration procedures for issuance of foreign debt instruments and emphasized once more that issuers should apply for filing and registration prior to the issuance, and promptly submit details about the issue upon the issuance.

Any issuers of foreign debts that fail to perform filing and registration procedures, warned the article, could risk finding their name in the bad credit record of the National Enterprise Credit Information Publicity System (NECIPS) or on the joint sanction information platform. Meanwhile, the NDRC requires intermediaries such as lawyers and underwriters to co-ordinate in regulation over issuance of bonds.

As is understood, being included in the bad credit record of the NECIPS will have an impact on subsequent fundraising and other relevant activities of an enterprise. Among the five companies criticized by name, Mengniu and China Water Affairs Group are so-called red-chip companies, i.e., internationally incorporated companies whose businesses are based in mainland China. In this article the authors will explore whether red-chip companies need to complete filing procedures with the NDRC in connection with issuance of bonds in overseas markets.

Author: Lai Jihong and Chen Jingeng are partners at Zhong Lun Law Firm in Shenzhen