The General Office of the National Development and Reform Commission ("NDRC") and the General Office of the Ministry of Finance ("MOF") have recently released the Circular on Further Enabling Corporate Bonds to Better Serve the Real Economy and Guarding Against Local Debt Risks (the "Circular").
The Circular provides clarity on matters concerning corporate bonds, requiring that the applying enterprise shall establish a sound and standardized structure for corporate governance, the management decision-making mechanism and the financial management system; public servants working in the party and government organs are absolutely prohibited from taking any concurrent position (holding a host) in enterprises without prior approval. Assets owned by an applying enterprise shall be of good quality and free from any ownership dispute, and it is not allowed to count non-profit assets, such as public schools, and the right to use land reserves, into the assets owned by the applying enterprise. Furthermore, the Circular stipulates that a project purely for public benefits shall not be used as an equity investment project to apply for issuing corporate bonds. Meanwhile, the Circular calls for standardizing the fundraising by issuing bonds via public-private-partnership ("PPP") projects, tightening the applicable scope of the PPP mode, prudently evaluating risks of issuing bonds via PPP projects with government payment or viability gap funding PPP projects, and completely banning the debt financing under the PPP mode in an illegal or disguised manner.