On 22 March 2024, the National Financial Regulatory Administration of the PRC officially published Administrative Measures for Syndicated Loan (Draft for Comment) ("Draft Measures") to solicit public opinion. The Draft Measures are intended to revise the Syndicated Loan Guidelines, which were issued by the former China Banking Regulatory Commission in 2007 and revised in 2011 ("Guidelines"). While maintaining the overall structure of the Guidelines, the Draft Measures introduce several key changes. We summarise some of the key changes below.
Principles for Providing Syndicated Loans
The Draft Measures introduce new principles for banks engaging in the business of syndicated loans. It stipulates that banks should (i) enhance quality financial services for major strategies, key areas, and weak links; (ii) support the growth of the real economy; and (iii) strengthen penetration management. Banks should also control client concentration and effectively prevent and resolve risks. These principles suggest a strategic direction for banks to focus on certain specific sectors for the provision of syndicated loans.
Incorporation of Grouped Syndicated Loans Mode
The Draft Measures also make major adjustments to the mode of syndicated loans. It moves away from the Guidelines' requirement for uniform conditions and terms across the syndicated loans. Instead, it incorporates the concept of the grouped syndicated loan, drawing from international practice. This new mode allows syndicate members to offer loans with varying terms or types under one syndicated loan contract, provided that terms, interest rates, purposes, and other conditions shall remain consistent within each group. However, the Draft Measures also set restrictions on grouped syndicated loans, specifying that they should not form more than three groups, and in principle, each group should have at least two participating banks.
Allowing Partial Transfer of Syndicated Loans
Another highlight of the Draft Measures is that it expressly permits banks to partially transfer a syndicated loan by splitting the outstanding principal and interest in its entirety pro rata. This will activate the secondary market of syndicated loans if the Draft Measures are passed in the current form. However, the Draft Measures maintain the priority right of other members in the syndicate. Additionally, the Draft Measures also require that any transfer of a syndicated loan must be pre-registered at the China Credit Assets Registration & Exchange. However, further clarification is needed on how such registration shall be conducted, especially for the transfer of a cross-border syndicated loan.
Overall, the Draft Measures signify a potentially great move towards integrating with global syndicated loan practices while enhancing the oversight of domestic syndicated loan activities.
