In practice, the lending rates of overseas financial institutions are far below those of domestic ones. Because of this, through overseas lending secured by domestic guarantee, some insurance companies provide financial support for their overseas holding companies or joint-stock companies. According to Provisions on Foreign Exchange Administration of Cross-border Guarantee and Operational Guidelines for Foreign Exchange Administration of Cross-border Guarantee, Overseas lending secured by domestic guarantee refers to the form of cross-border guarantee whereby the place of registration of the guarantor is within the Mainland, while the places of registration of both the debtor and the creditor are outside the Mainland. Bank guarantee, for instance, the specific operational procedures of overseas lending secured by domestic guarantee are as follows: On the premise that the domestic enterprise provides unconditional, irrevocable counter guarantee , the domestic bank branch will issue a letter of guarantee in favor of its overseas institution for the domestic enterprise's overseas holding company or joint-stock company(overseas investment company). Then, the overseas institution of the bank will provide financing for the overseas investment company.
We think the mode of overseas lending secured by domestic guarantee has problems as follows if the insurance institutions apply it to finance overseas investment companies:
- Although this mode will not result in the outflow of insurance funds,the insurance institution that provide counter guarantee, as a matter of fact, is likely to be the final creditor. For instance, If overseas investment company fails to repay, the overseas institution may claim guarantee right to the domestic bank branch and the latter may claim counter guarantee right to the insurance institution, the insurance institution will become the creditor of overseas investment company when it takes the responsibility of counter guarantee. In this mode, it is uncertain that whether this act will be determined as overseas investment of insurance funds, it will also be suspected to eschew the supervision of China Insurance Regulatory Commission (hereinafter the "CIRC").
- The mode of overseas lending secured by domestic guarantee also relates to the counter guarantee for the domestic bank branch(guarantor), which is provided by the insurance institution to guarantee the borrowing behavior for the overseas investment company. According to article 1 and article 2 of Notice of China Insurance Regulatory Commission on Regulating Matters Related to External Guarantees of Insurance Institutions, insurance companies and insurance asset management companies are not allowed to provide external guarantee in addition to specific circumstances; insurance group company may provide guarantee for its subsidies but the behavior of providing guarantees for subsidiaries shall comply with the relevant provisions of the Administrative Measures on Insurance Group Companies (Trial) and the Interim Measures for the Administration of Connected Transactions of Insurance Companies. If we interpret regulations aforesaid strictly, most clients are insurance companies rather than insurance group companies or insurance holding companies. Because of the restriction of external guarantee, there are limitations in respect of applying overseas lending secured by domestic guarantee.
Therefore, it is still uncertain whether the insurance institutions can apply the mode of overseas lending secured by domestic guarantee to finance overseas investment companies, it needs to be clarified by CIRC and all other relevant supervision departments. It should be noted that even if insurance institutions may apply mode of overseas lending secured by domestic guarantee to finance overseas investment companies, related principals should observe the procedures speculated in Provisions on Foreign Exchange Administration of Cross-border Guarantee and Operational Guidelines for Foreign Exchange Administration of Cross-border Guarantee. The main procedures are as follows:
- If the guarantor is a non-banking financial institution, it shall conduct registration in local Foreign Exchange Bureau;
- Guarantor shall hold the appropriate guarantee business qualifications;
- Related principals shall observe the limitation of the use of overseas lending secured by domestic guarantee funds;
- After the guarantee obligations are performed, the relevant domestic creditor shall apply for the registration of external debts.
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