... Most Chinese companies that issue public debt offshore do so using offshore holding companies (holdcos) that own equity (usually 100% or majority stakes) in onshore operating companies, and are typically incorporated in tax-efficient jurisdictions. In the absence of upstream guarantees from onshore operating subsidiaries, lenders to the offshore holdcos are structurally subordinated. New Regulations Warrant Testing: The National Development and Reform Commission (NDRC) introduced a registration-based programme in September 2015 for offshore debt issuance by Chinese corporates, including their offshore subsidiaries/equity affiliates. Fitch Ratings expects the new rules to benefit leading corporates in government-supported sectors the most. Offshore debt issued by onshore corporates directly bears no structural subordination risk, but the rules still lack clarity and transparency at the implementation level. Cross-border Guarantees: The...
