Guidelines for the Project Financing Business

Article 3: For the purposes of these Guidelines, the term “project financing” means loans with the following characteristics:

(1) generally, the loan is to be used to construct one or a set of large scale production installation(s), infrastructure, a real property project or other project, and include the refinancing of a completed project or one under construction;

(2) generally, the borrower is an enterprise or public institution with legal personality specially established for the construction or operation of the project or for obtaining financing for the project, including an existing enterprise or public institution with legal personality that mainly engages in the construction, operation or financing of the project; and

(3) the source of the funds for repayment mainly relies on the sales income, subsidy income or other income generated by the project, and, in general, it does not have other repayment sources.

Article 4: A Lender that wishes to engage in the project financing business shall have the risk identification and management capabilities for the projects in which it engages, have the professional personnel required for the business and establish sound operating procedures and risk management mechanisms.

The Lender may, as required, engage or require the borrower to engage qualified independent intermediary organisations to provide law, tax, insurance, technology, environmental protection and supervision related professional opinions on or services for the project.

Article 5: The projects for which a Lender provides project financing shall comply with relevant state industrial, land, environmental protection, investment management and other such policies.

Article 6: When engaging in project financing business, a Lender shall fully identify and assess risks during the construction period and operating period that a project for which it provides financing faces, including policy risk, fund-raising risk, construction completion risk, product market risk, over-budget risk, raw material risk, operational risk, exchange rate risk, environmental protection risk and other relevant risks.

Article 7: When engaging in project financing business, a Lender shall treat solvency analysis as core, assess project risks mainly with respect to the technical and financial feasibility of the project, reliability of the repayment source, etc., fully take into consideration the impact on the project of policy changes, market fluctuations and other such uncertain factors, and prudently forecast the future returns and cash flow of the project.

Article 8: A Lender shall, in accordance with relevant state provisions on the business capital system for fixed asset investment projects, rationally determine the loan amount after comprehensively taking into account factors such as the risk level of the project and its own risk bearing capacity.

Article 9: A Lender shall reasonably determine the loan term and repayment schedule based on factors such as the project's projected cash flow and payback period.

Article 10: A Lender shall reasonably determine the interest rate on a loan pursuant to relevant provisions of the People's Bank of China on the administration of interest rates and based on the principle of the matching of risks and returns and while comprehensively taking into account factors such as project risks and risk mitigation measures.

A Lender may use different loan interest rates based on the risk characteristics and levels at different stages of project financing.

Article 11: A Lender shall require project assets and/or anticipated project returns and other such rights that satisfy mortgage/pledge conditions to be used as security for the loan and may, as required, require the provision of security in the form of a pledge of the equity of the project company held by the project promoter.

A Lender shall require that it be the party with first priority in filing for insurance proceeds under the commercial insurance taken out for the project, or take other measures to effectively control the rights and interests in insurance compensation.

Article 12: A Lender shall take measures to effectively reduce and diversify the various risks that the project it is financing faces during the construction period and operating period.

The Lender shall minimise the risks during the construction period to the greatest extent possible by requiring the borrower or, through the borrower, requiring relevant project parties to execute a general contracting contract, take out commercial insurance, set up a completion deposit, provide security for completion and a performance guarantee, etc.

The Lender may effectively diversify the risks during the operating period by requiring the borrower to execute long-term supply and distribution contracts, use financial derivatives or have the promoter provide security against a fund shortage, etc.

Article 13: A Lender may effectively diversify risks by providing financial advice services for the project, designing a comprehensive financial service programme for the project, using various financial instruments in combination and broadening the channels for project funding sources.

Article 14: A Lender shall appropriately design project financing contract terms addressing account management, loan fund payment, the borrower's undertakings, control of financial indicators, material breaches of contract, etc. in accordance with the relevant provisions of the Tentative Measures for the Administration of Loans for Fixed Assets so as to promote the normal construction and operation of the project and effectively control project financing risks.

Article 15: A Lender shall disburse loan funds based on the actual progress of the project and fund requirements and in accordance with the conditions specified in the contract. Before disbursing the loan, the Lender shall confirm that the business capital of the project proportional to the loan to be disbursed is paid in in full and is used in conjunction with the loan.

Article 16: A Lender shall manage and control payment of loan funds in accordance with relevant provisions on the disbursement and payment of loans of the Tentative Measures for the Administration of Loans for Fixed Assets and, when necessary, may specify with the borrower in the loan contract a dedicated loan disbursement account.

If the lender direct payment method is used, the Lender may, when necessary, require the borrower, the independent intermediary organisations and the contractors, etc. to jointly inspect the progress of the manufacture of the equipment or the construction of the project, and shall effect payment of the loan pursuant to the joint certificate issued and complying with the conditions specified in the contract.

Article 17: A Lender shall specify with the borrower a dedicated project income account and require that all project revenues be deposited into the specified account and that payments to third parties therefrom be made in accordance with the pre-determined conditions and by the pre-determined method.

The Lender shall dynamically monitor the project income account. In the event of an irregularity in the account's fund flow, it shall ascertain the reason therefor and take appropriate measures in a timely manner.

Article 18: During the life of the loan, a Lender shall monitor the construction and operation of the project on an ongoing basis, regularly assess the project risks based on the security provided for the loan, the market environment, macroeconomic changes and other such factors and establish a loan quality monitoring system and risk advance warning system. It shall take appropriate measures in a timely manner should a circumstance that could affect the security of the loan arise.

Article 19: If several banking financial institutions participate in the financing of the same project, they shall, in principle, do so in the form of a syndicated loan.

Article 20: Reference shall be made to these Guidelines for loans disbursed for cultural innovation, new technology development and other such projects provided that they satisfy project financing characteristics.

Article 21: The China Banking Regulatory Commission is in charge of interpreting these Guidelines.

Article 22: These Guidelines shall be effective three months from the date of issuance.