Foreign debt and cross-border guarantee
For overseas loan under domestic guarantee, domestic banks provide guarantee to affiliated enterprises or participating enterprises registered overseas by domestic enterprises, and overseas banks issue corresponding loan to overseas investing enterprises. The way of guarantee shall be: domestic banks provide overseas companies affiliated to domestic enterprise by issuing L/G or standby L/C. Since one-chop approval is unnecessary, it greatly shortens business flow compared to former financing guarantee.
In the guarantee for bond issuance, according to definitions in Management Regulations on Foreign Exchange for Cross-border Guarantee, “overseas loan under domestic guarantee” refers to the cross-border guarantee with the Guarantor’s registration place in China while the Debtor’s and the Creditor’s registration places overseas; correspondingly, domestic loan under foreign guarantee refers to the cross-border guarantee with the Guarantor’s registration place overseas while the Debtor’s and the Creditor’s registration places in China.
Cross-border guarantee refers to the written, legally binding guarantee issued by the Guarantor to the Creditor to perform relevant payment obligations as per the guarantee contract and probably generate international payment transaction such as cross-border collection and payment or cross-border transfer of assets ownership.
For domestic loan under overseas guarantee, overseas companies apply for financing L/G to overseas institutions provided that RMB is not freely convertible.
At present, the domestic loan under overseas guarantee is only applied to foreign-invested enterprises. Chinese enterprises may gain domestic loan under overseas guarantee upon approval of local foreign exchange administration. If performance is required, the foreign-invested enterprises shall meet requirements of difference between investment and registered capital.