Guidelines for the Syndicated Loan Business

(Issued by the China Banking Regulatory Commission on, and effective as of, August 11 2007.)

Yin Jian Fa [2007] No.68

PART ONE: GENERAL PROVISIONS

Article 1:       These Guidelines have been formulated pursuant to laws and regulations such as the PRC Banking Regulation Law, the PRC Commercial Banking Law, the PRC Contract Law and the PRC Security Law in order to promote and regulate the syndicated loan business, spread credit risks, promote cooperation in the banking sector and better provide financing services to key enterprises and projects.

Article 2:       These Guidelines shall apply to banks and non-bank financial institutions that are established within the territory of China with the approval of the China Banking Regulatory Commission (Banks) and that engage in loan business.

Article 3:       The term "syndicated loan" means the business whereby two or more Banks extend a renminbi or foreign currency denominated loan or credit to a borrower via the agent Bank at the specified time and in the specified percentages based on the same loan terms and conditions and pursuant to the same loan agreement.

Article 4:       When Banks engage in the syndicated loan business, they shall comply with relevant state laws and regulations and state credit policy, and adhere to the principles of equality, mutual benefit, consultations conducted on a fair basis, performance in good faith and bearing of risks oneself.

Article 5:       Banking associations, as the self-regulatory organizations of the industry, shall be responsible for the self- regulatory work in the syndicated loan market, play a coordinating role in respect of problems arising in syndicated loans and transactions, collect and disclose relevant information on syndicated loans, formulate relevant industry agreements, etc.

PART TWO: SYNDICATE MEMBERS

Article 6:       All Banks that participate in a syndicated loan are members of the syndicate. Each member of a syndicate shall determine its credit extension acts at its own discretion based on the principles of "sharing information, independent examination and approval, autonomous decision making and bearing of risks oneself, and enjoy the attendant rights and bear the attendant obligations under the syndicated loan based on the actual share it committed to.

Article 7:       Based on their functions and division of responsibilities in a syndicated loan, members of a syndicate typically assume roles such as lead Bank, agent Bank and participating Bank, or may, based on the actual scale and needs, have a secondary lead Bank, etc., in the syndicate, and perform the attendant duties based on the relevant syndicated loan agreement.

Article 8:       The term "lead Bank of a syndicated loan" means the Bank approved by the borrower that promotes and organizes the syndicate and is responsible for apportioning the shares of the syndicated loan, and is the organizer and arranger of the syndicated loan.

Article 9:       The principal duties of the lead Bank are set forth below:

(1)   promoting and organizing the syndicated loan and apportioning the shares of the syndicated loan;

(2)   conducting a pre-loan due diligence investigation of the borrower, drafting the syndicated loan information memorandum and recommending the syndicated loan to potential participating banks;

(3)   representing the syndicate in negotiating and determining the syndicated loan terms and conditions with the borrower;

(4)   representing the syndicate in engaging the relevant intermediary organizations to draft the legal documents for the syndicated loan;

(5)   arranging for the members of the syndicate to execute a written syndicated loan agreement with the borrower;

(6)   assisting the agent Bank in managing the syndicated loan; and

(7)   other duties determined in the syndicate agreement.

Article 10:     When a single Bank serves as the lead Bank, the share that it underwrites shall not, in principle, be less than 20% of the entire amount of the syndicated financing; and the shares that it apportions to other members of the syndicate shall not, in principle, be less than 50%.

Article 11:     Based on the responsibility borne by the lead Bank in respect of the final amount arranged for the loan, the apportioning of the syndicated loan by the syndicate lead Bank may be done by way of a firm commitment underwriting arrangement, stand-by underwriting arrangement or best efforts underwriting arrangement.

Article 12:     The term "syndicate agent Bank" means the Bank that, after the execution of the syndicated loan agreement, collects the proceeds and extends the loan to the borrower in the amount and according to the schedule determined pursuant to the relevant loan terms and conditions and that, as appointed by the syndicate, manages the syndicated proceeds in accordance with the duties specified in the syndicated loan agreement.

The lead Bank may serve as agent Bank, or the agent Bank may be determined through consultations among the members of the syndicate.

Article 13:     The principal duties of the agent Bank are set forth below:

(1)   examining and causing the borrower to implement the loan terms and conditions, extending the loan or carrying out other credit matters;

(2)   carrying out the security/mortgage procedures for the syndicated loan and assuming responsibility for the day-to-day management of the mortgaged (pledged) thing;

(3)   drawing up the account management plan, opening a dedicated account to manage the syndicated loan proceeds and recording the changes in the proceeds in the dedicated account item by item;

(4)   notifying the members of the syndicate to transfer proceeds into the designated account in proportion to the shares undertaken by them as specified in the syndicated loan agreement by the specified drawdown date or pursuant to a drawdown application by the borrower;

(5)   receiving the transferred principal of and interest on the syndicated loan, charging the relevant charges on the behalf of the other members and transferring the same in a timely manner into the accounts designated by the members of the syndicate in proportion to the shares undertaken by them and in accordance with the provisions of the syndicated loan agreement;

(6)   being responsible for post-lending management of the syndicated loan, monitoring and inspecting the use of the loan and regularly reporting the same to the members of the syndicate;

(7)   closely watching the borrower's financial position, and, particularly when a material event that could affect the borrower's repayment capacity, such as a corporate merger or acquisition, distribution of dividends, investment in third parties, asset transfer or debt reorganization, occurs during the term of the loan, notifying the members of the syndicate thereof in the form of a special report in accordance with the syndicated loan agreement within three business days from the date of receiving notice from the borrower;

(8)   in the event of a default by the borrower, arranging for the members of the syndicate to carry out recovery, take preservation measures or seek recourse in respect of, or otherwise deal with, the loan default in a timely manner;

(9)   organizing and holding syndicate meetings and harmonizing the relationships among the members of the syndicate; and

(10) accepting inquiries from, and the checking by, the members of the syndicate on an irregular basis, handling other matters entrusted to it by the syndicate meeting, etc.

Article 14:     The agent Bank shall act with due diligence. If the interests of the syndicate are damaged due to negligence or an omission on the part of the agent Bank, the syndicate meeting shall have the right to replace the agent Bank in accordance with the syndicated loan agreement and require the agent Bank to compensate for the relevant losses. The specific provisions therefor may be stipulated in the syndicated loan agreement or other such document.

Article 15:     The term "syndicate participating Bank" means a Bank invited by the lead Bank to join the syndicate and to provide the loan to the borrower in the share undertaken by it as determined through consultations.

The main duties of a syndicate participating Bank are to attend syndicate meetings, transfer funds on time and in full into the account designated by the agent Bank as agreed understand and keep abreast of the borrower's day-to-day business operations and changes in its credit position during the term of the loan and notify the agent Bank in a timely manner of any irregular circumstances that it discovers.

Article 16:     The term "security agent Bank" means the Bank in a syndicated loan where the security structure is relatively complex that is responsible for tasks such as putting in place the various types of security for the syndicated loan and the transfer and management of the mortgaged (pledged) things.

PART THREE: PROMOTION AND ORGANIZATION OF A SYNDICATED LOAN

Article 17:     The use of a syndicated loan is encouraged for large loans characterized by any of the following circumstances:

(1)   financing of a large group-customer or large project or various large operating capital financings;

(2)   the total financing for a single enterprise or single project exceeds 10% of the lender's capital balance;

(3)   the total credit to be extended to a single group-customer exceeds 15% of the lender's capital balance; or

(4)   the borrower uses competitive negotiations to select banking financial institutions to finance a project.

A banking association in a region may organize member banks within its region in determining the specific lower limit for syndicated loans based on the foregoing principles and while taking into account the realities of the region.

Article 18:     The promotion of a syndicated loan may be proposed by the borrower or a Bank. Following the approval or selection of the lead Bank by the borrower, it shall negotiate with the borrower to reach the preliminary terms and conditions of the syndicated loan and issue a preliminary syndicated loan memo stipulating such terms and conditions.

Article 19:     The lead Bank shall conduct a pre-loan due diligence investigation of the borrower or loan project in accordance with the requirements of the Guidelines for Due Diligence by Commercial Banks When Extending Credit and, on such basis, conduct preliminary negotiations with the borrower, discussing the purpose and amount of, interest rate on, and term of, the loan, the form of security, the drawdown conditions, the repayment method and related charges, etc. On this basis, it shall then prepare the syndicated loan information memorandum.

Article 20:     The syndicated loan information memorandum shall be prepared by the borrower with the assistance of the lead Bank on the basis of the pre-loan investigation and shall be distributed to the potential participating banks by the lead Bank, serving as an important basis for the potential participating banks to review the loan and propose revisions.

The syndicated loan information memorandum shall mainly include the basic terms and conditions of the syndicated loan, the legal status and an overview of the borrower, the borrower's financial position, an overview of the project, a market analysis, an analysis of the financial cash flow of the project, a description of the guarantor/thing provided as security, title to the collateral, risk factors, risk avoidance measures, the examination and approval procedures for the project, an environmental impact measurement and assessment document issued by the competent environmental protection authority, etc.

Article 21:     In the course of preparing the syndicated loan information memorandum, the lead Bank shall truthfully disclose to the potential participating banks all of the true information about the borrower and ensure that the information included in the syndicated loan information memorandum is substantially true, complete and correct.

Article 22:     Before the information memorandum is distributed to other banks by the lead Bank, it shall be reviewed by the borrower and guarantor and they shall sign a declaration stating that they will be liable for the truthfulness and completeness of the information contained in the information memorandum.

Article 23:     With a view to enhancing the independence, impartiality and truthfulness of the information memorandum and other such syndicate information, the lead Bank may engage external intermediary organizations, such as a an accounting firm, asset appraisal firm, law firm and relevant technical experts to be responsible for evaluating and preparing the relevant information and data and to issue opinions.

Article 24:     Following consultations with the borrower, the lead Bank shall issue to the potential participating banks a syndicated loan invitation, accompanied by a list of the loan terms and conditions, the information memorandum, an undertaking of confidentiality, a loan undertaking and other such documents.

The syndicated loan invitation is an invitation to treat issued to the potential participating banks by the lead Bank and is a valid legal document with which the lead Bank invites them on the behalf of the borrower to participate in the syndicated loan based on the principal loan terms and conditions indicated therein.

Article 25:     A Bank that receives such a loan invitation shall make its decision on whether or not to participate in the syndicated loan in accordance with the principles of "sharing information, independent loan examination, autonomous decision-making and bearing of risks oneself", pursuant to the contents of the syndicated loan information memorandum and based on a full comprehension of the relevant information on the borrower. If the information in the memorandum is insufficient to satisfy the examination and approval requirements of the potential syndicated loan participating Bank, the potential participating Bank may request the lead Bank to provide additional relevant information, put forth relevant work proposals or even directly conduct the relevant investigations.

Article 26:     The lead Bank shall reasonably determine the loan shares of the members of the syndicate based on the actual feedback from the invited banks. If the loan is over-subscribed or under-subscribed, the lead Bank may determine anew the shares of each member of the syndicate based on the pre-determined conditions or after consultations with the borrower.

PART FOUR: SYNDICATED LOAN AGREEMENT

Article 27:     The syndicated loan agreement is a legal document that is jointly executed by the members of the syndicate, the borrower and guarantor pursuant to relevant laws and regulations following consultations and that principally specifies the rights and obligations of the members of the syndicate, the borrower and guarantor. The syndicated loan agreement shall include the following main provisions:

(1)   the basic particulars of the parties;

(2)   definitions and interpretation;

(3)   provisions on the loan, including the amount and currency of the loan, the loan term, interest rate on the loan, purpose of the loan, repayment method, source of the funds for repayment, loan security portfolio, conditions for extension of the loan, provisions on prepayment, etc.;

(4)   the loan amounts undertaken by each member of the syndicate and the dates for transfer of the loan proceeds;

(5)   conditions precedent to drawing down the loan;

(6)   charges;

(7)   taxation;

(8)   financial restrictions;

(9)   non-financial undertakings, including limitations on the disposal of assets, changes of business, information disclosure, etc.

(10) events of default and handling of the same;

(11) governing law; and

(12) auxiliary documents.

Article 28:     The rights and obligations among the members of the syndicate may be provided for in the syndicated loan agreement or through the execution of an Internal Syndicate Agreement (or otherwise known as an Agreement Among Banks to a syndicated loan, etc.). The rights and obligations among the members of a syndicate mainly include the internal division of responsibilities among the members of the syndicate, their rights and obligations, the allocation of the syndicated loan shares, transfer of syndicated loan shares, rules of procedure for syndicate meetings, withdrawal by a member of the syndicate, dissolution of the syndicate, breach of contract and liability therefor, dispute resolution method, and other matters required by laws and regulations and those deemed necessary by the members of the syndicate.

Article 29:     The members of the syndicate shall transfer the loan proceeds on time and in full in strict accordance with the loan provisions and perform their duties and obligations in accordance with the loan contract.

Article 30:     The borrower shall ensure that it uses the loan for its earmarked purpose, transfer the loan principal and interest to the agent Bank on time and truthfully provide relevant information to the members of the syndicate in strict accordance with the syndicated loan agreement.

PART FIVE: MANAGEMENT OF THE SYNDICATED LOAN

Article 31:     Responsibility for the day-to-day management of the syndicated loan shall principally lie with the agent Bank. The lead Bank shall assist the agent Bank in tracking and keeping abreast of the progress on the project during the term of the loan, discover in a timely manner problems that could arise in the syndicated loan and inform the members of the syndicate thereof in writing as soon as possible.

Article 32:     During the term of the syndicated loan, the lead Bank or agent Bank shall normally be responsible for holding regular syndicate meetings, or, alternatively, one-third or more of the members of the syndicate may jointly propose that a meeting be held. The main duties of the syndicate meeting shall be to discuss and consult on material issues that arise in the management of the syndicated loan.

Article 33:     The material matters deliberated on at syndicate meetings shall mainly include revision of the syndicated loan agreement, adjustment of loan shares, changing of the security, revision of the interest rate, termination of the syndicated loan, reporting of corporate mergers, acquisitions and material affiliated transactions, determination of default by the borrower, loan reorganization, adjustment of the agent Bank, etc.

Article 34:     Once the loan matures, the borrower shall repay the principal of, and pay the interest on, the loan on time and in full. If the borrower is to prepay the loan, it shall notify the agent Bank thereof at least 60 business days prior to the next scheduled repayment date and, after obtaining consent of the members of the syndicate, shall discharge the principal of, and interest on, the loan that is due last, in accordance with the principle of first repaying that which is due last, based on the sequence of maturity of the relevant loan balances as specified in the syndicated loan agreement.

If the borrower prepays part of the loan, the members of the syndicate may charge it liquidated damages based on the time of the prepayment and the amount prepaid. The actual percentage to be charged may be specified in the syndicated loan agreement.

Article 35:     If a risk to the syndicated loan emerges, the agent Bank shall be responsible for holding a syndicate meeting in a timely manner to establish a Bank claim committee to recover, implement preservation measures for, reorganize and dispose of the loan. When necessary, it may apply for arbitration or institute a legal action in a people's court.

Article 36:     During the term of the syndicated loan, members of the syndicate may not, in principle, provide outside the syndicate to the same project a loan or other credit that is damaging to the interests of the other members of the syndicate.

Article 37:     If in the course of handling syndicated loan business a Bank discovers that the borrower has committed any of the breaches of contract set forth below and fails to remedy the same after the same has been pointed out, the agent Bank shall be responsible for holding a syndicate meeting to pursue its liability for breach of contract and notify the borrower and its guarantor in writing:

(1)   the relevant documents provided by it have been substantiated as being invalid;

(2)   it fails to perform and abide by its obligations under the syndicated loan agreement;

(3)   it fails to pay interest and principal in accordance with the syndicated loan agreement;

(4)   it uses means such as a fraudulent bankruptcy to evade its Bank debts; or

(5)   it commits another breach of contract as specified in the syndicated loan agreement.

Article 38:    If a member of the syndicate commits any of the acts set forth below in the course of the syndicated loan extension and is determined, after review, at a syndicated loan meeting to be in breach of contract, it may be required to pay compensation for its breach. If the circumstances are serious, it shall bear legal liability. A dispute as mentioned above among the members of the syndicate shall not affect the performance of the loan agreement between the syndicate and the borrower.

(1)   After receipt of a notice given by the agent Bank by the time specified in the agreement, the member of the syndicate fails to transfer the amount in full by the deadline specified in the agreement.

(2)   The member of the syndicate recovers the loan early without authorization or withdraws from the syndicate in breach of contract.

(3)   The member of the syndicate fails to implement the resolutions of the syndicate meeting.

(4)   The borrower returns the principal of, and interest on, the syndicated loan but the agent Bank fails to pay the same to the members of the syndicate in a timely manner as agreed.

(5)   Another breach of the syndicated loan agreement, these Guidelines or other laws, regulations or rules is committed.

Article 39:     If a member of the syndicate is to transfer the loan in accordance with the syndicated loan agreement, it shall give advance notice thereof to the borrower and agent Bank. If the syndicated loan agreement specifies that the consent of the borrower is required, it shall obtain the prior consent of the borrower.

Article 40:     Members of the syndicate shall regularly submit information on the syndicated loan to the local banking association, including the quantity underwritten and held on the syndicated loan primary market, the quantity transferred to the secondary market, the interest rate on the syndicated loan, the charge rates, the loan term, the security conditions, the borrower's credit rating, etc.

Article 41:     A Bank that engages in syndicated loan business shall formulate measures for the administration of its syndicated loan business based on these Guidelines while taking into consideration its own level of operation and management, establish a management mechanism appropriate for the risks associated with the syndicated loan business and designate a relevant department and persons with responsibility for the day-to-day management of syndicated loans.

Article 42:     When banks extend a syndicated loan to a large group-customer, they shall be careful to guard against risks posed by the internal affiliated transactions of the group-customer and the mutual provision of security among affiliated parties. With respect to group-customers that have frequent internal affiliated transactions or significant mutual provision of security, banks shall strengthen their examination of such customer's creditworthiness, and strictly control extension of the loan.

PART SIX: SYNDICATED LOAN CHARGES

Article 43:     The term "syndicated loan charges" means the relevant intermediary charges that members of a syndicate charge a borrower for providing financing services such as financial advice, raising of loan funds, credit guarantees and legal consulting, and are managed as part of a commercial Bank's intermediary business.

Syndicated loan charges shall be determined through consultations between the members of the syndicate and the borrower based on the principles of "voluntary consultations, fairness, reasonableness and conformity of value with price" and shall be stipulated in the syndicated loan agreement or an invoice letter.

Article 44:     The specific items comprising the syndicated loan charges may include an arranging fee, undertaking fees, agency fees, etc. Only those members of the syndicate that provide the corresponding services to the borrower shall be eligible for the syndicated loan charges.

In general, the arranging fee shall be paid in one lump sum as a certain percentage of the total syndicated loan; the undertaking fees shall, in general, be charged annually by the method specified in the syndicated loan agreement at a certain percentage of the unused balance; and the agency fees shall be paid annually based on the amount of work of the agent Bank.

Article 45:     In line with the principle of "whoever takes out a loan pays the charges", the syndicated loan charges shall be paid by the borrower. The types and amounts of the charges shall be determined by the borrower and lenders through consultations, and may not be determined by adding points to the interest rate.

Article 46:     The lead Bank may not impose any unreasonable conditions on the members of the syndicate, may not compete for syndicated loan business by means such as waiving charges, nor may it take advantage of its organizing of the syndicated loan to sell other financial products to the members of the syndicate or the borrower through a tying arrangement or charge them other fees.

PART SEVEN: SUPPLEMENTARY PROVISIONS

Article 47:     The China Banking Regulatory Commission shall be in charge of interpreting these Guidelines. In the event of a discrepancy between these Guidelines and previously issued provisions on syndicated loan business, these Guidelines shall prevail.

Article 48:     These Guidelines shall be effective as of the date of issuance.