China Banking and Insurance Regulatory Commission, Measures for the Administration of Financial Asset Investment Companies (Trial Implementation)

Financial asset investment companies are encouraged to carry out debt-for-equity swaps through first acquiring the claims of a bank against an enterprise and then converting such claims into equity. The acquisition price shall be determined through negotiations conducted freely between the parties based on the market principle. If non-performing bank assets are involved, matters may be handled in accordance with provisions on the disposal of non-performing assets. Banks are encouraged to promptly use assets that have been written off by making provisions therefor to transfer their losses (Article 4).

A financial asset investment company shall be promoted and established by a commercial bank registered and established in the People's Republic of China as a major shareholder. A commercial bank serving as a major shareholder shall satisfy conditions including:

(1) having a good financial position and having been successively profitable in the previous three fiscal years;

(2) the funds used for acquiring the equity stake being its own funds, and funds not owned by it such as debt funds or entrusted funds not being used to do so; and

(3) giving an undertaking that it will not transfer the equity held by it for at least five years, and not create a pledge over such equity or use it to establish a trust, and specifying the same in the financial asset investment company's articles of association (Article 8).

Another domestic or foreign legal person serving as a shareholder of a financial asset investment company shall satisfy conditions including:

(1) if it is not a financial institution, having total assets of not less than Rmb5 billion or the equivalent in a freely convertible currency as at the end of the previous year and net assets of not less than 30% of its total assets as at the end of the previous year; and

(2) if it is not a financial institution, the balance of its equity type investments, in principle, not exceeding 50% of its net assets (on a consolidated accounting statement basis) (Article 9).

A financial asset investment company's registered capital shall be monetary capital paid in one lump sum, the minimum amount of which shall be Rmb10 billion or the equivalent in a freely convertible currency (Article 11).

Subject to the approval of the State Council's banking regulator, a financial asset investment company may engage in some or all of the following businesses:

(1) for the purposes of debt-for-equity swaps, acquiring the claims of banks against enterprises, converting such claims into equity and managing such equity;

(2) restructuring, transferring and disposing of claims that cannot be converted into equity;

(3) for the purposes of debt-for-equity swaps, investing in the equity of enterprises, with the enterprises then using all of the proceeds from the equity investment to pay back their existing debts;

(4) lawfully and compliantly raising funds from qualified investors and offering private asset management products to support its carrying out of debt-for-equity swaps;

(5) offering financial bonds;

(6) obtaining financing through means such as bond buybacks, interbank lending and interbank borrowing;

(7) carrying out the required investment management of the funds operated for its own account and those raised from investors; the funds operated for its own account may be used for interbank deposits, interbank lending, purchase of sovereign bonds or other fixed-return type securities, or other such business, whereas the use of funds raised from investors shall comply with the purpose specified at the time they were raised;

(8) financial advice and consulting business relating to debt-forequity swap business; and

(9) other business approved by the State Council's banking regulator.

The business set forth in Items (1), (2), (3) and (4) of the preceding paragraph shall be the main business of financial asset investment companies. In principle, the main business of a financial asset investment company for the year or the revenues from its main business for the year shall not represent less than 50% of its total business or total revenues (Article 23).

Related legislation: Guiding Opinions on Regulating the Asset Management Business of Financial Institutions and Guiding Opinions for the Market-oriented Conversion of Bank Claims to Equity