New Guidelines on Syndicated Loans in the PRC

The Guidelines apply to all domestic and foreign banks and non-bank financial institutions (collectively, Banks) that are established and engaged in lending operations in the PRC. The Guidelines provide a framework of rules that govern the roles, rights and duties of the arranger, administrative agent, security agent, the syndicate Banks (the Lenders) and the borrower (Borrower), with a particular emphasis on rules for Banks acting as an arranger of syndicated loans in the PRC (the Arranger).

GENERAL SCOPE OF THE GUIDELINES

The Guidelines are comprehensive in scope, as they apply to all Banks providing syndicated loans in the PRC, including both Rmb and foreign currency loans. A 'syndicated loan' is any loan or similar credit facility that is provided by two or more Banks to the same borrower with a common set of financing documents.

Like the 1997 Regulations, the Guidelines are organized into seven chapters; however, there are now specific sections covering the syndicated loan agreement (Finance Documents) (Section IV), syndicated loan management (Section V) and a new section with detailed advice on syndicated loan charges (Section VI) that were not previously covered in the 1997 Regulations.

Unlike the much shorter and more broadly worded 1997 Regulations, the Guidelines attempt to provide more specific market advice and detailed rules to be followed by PRC banks.

UPDATES AFFECTING THE ROLE OF THE ARRANGER

One of the most significant areas in which the Guidelines depart from standard international lending practice is the role of the Arranger. Contrary to typical international standards that see the role of the Arranger diminish significantly following the completion of syndication, the Guidelines contemplate a much more active role for the Arranger throughout the entire tenor of the loan.

Some of the more noteworthy duties and responsibilities of Arrangers as set forth in the Guidelines include:

Article 10: Where a single Bank acts as the Arranger, the amount of the loan that is ultimately held by the Arranger post-syndication may not be less than 20% nor more than 50% of the total amount of the loans provided to the Borrower. It is not clear why the Guidelines adopt minimum and maximum hold levels only in situations where there is a single Arranger. Because there are no similar rules governing hold levels when there are two or more Arrangers, this rule may be easily circumvented by having more than one Bank assume the role of Arranger.

Article 11: Arrangers are free to agree with a Borrower to provide financing in one of three ways: as a firm underwriting of the entire amount desired by the Borrower, as a firm underwriting of only a portion of such amount, or for an Arranger to use its best efforts to syndicate the desired level of debt with no underwritten amount.

Article 20: An Arranger is required to prepare and to distribute a syndicated loan information memorandum (Information Memorandum) based upon information provided to the Arranger by the Borrower as well as the Arranger's own due diligence activities. Each Information Memorandum must contain the basic terms of the syndicated loan, the Borrower's corporate information, the Borrower's financial condition, details of the project and market analysis, a financial cash flow analysis and projection, an overview of the security provided (if the loans are secured), an analysis of any mortgaged property, risk factors and risk minimization methods employed by the Borrower, required governmental approvals and an environmental impact monitoring and assessment discussion prepared by a qualified environmental protection consultant.

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