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China Banking Regulatory Commission Issues Guidelines on Project Financing - 中国银监会发布《项目融资业务指引》
September 10, 2009
Released on July 18, 2009, and effective on October 18, 2009
The China Banking Regulatory Commission (“CBRC”) issued the Guidelines on Project Financing Business ("Guideline") on July 18, 2009, which will become effective on October 18, 2009. Project Financing refers to a loan used for the construction of one or a set of large manufacturing facilities, infrastructure, real estate project or other projects. The borrower is an enterprise or institutional legal person established specially for constructing, operating a project, or for the financing of a project. The source for repayment of the loan is the sales revenue, subsidy revenue or other revenue generated from the project.
• Requirement for approving a loan
The Guidelines provide detailed requirements for lenders to approve a loan application for project financing, including evaluating the risks at the construction and operation stage, feasibility and creditworthiness, and reviewing the compliance of the project with the law and various policies.
• Interest rate
Lenders can set different interest rates for different phases of the project based on their respective risk.
• Security for the loan and primary beneficiary of the insurance
Lenders shall require the borrower to create a mortgage or a pledge over the project assets, or the right to receive expected proceeds, and, if necessary, to create a pledge over the equity of the project company held by the promoters of the project.
Lenders shall be the primary beneficiary of the commercial insurance policy for the project or shall take other effective measures to ensure its interests arising from the insurance.
• Other methods to eliminate risks
The Guidelines also provide other methods to eliminate risks, including accounts management, supervision system and contract clause design, etc.
• Syndicated loan
A syndication loan shall be arranged if several lenders are engaged in the same project financing.