钱伯斯《全球法律实务指南：项目融资2023》之中国篇-英

CHAMBERSGLOBALPRACTICEGUIDES

ProjectFinance

2023

Definitivegloballawguidesoffering

comparativeanalysisfromtop-rankedlawyers

China:Law&Practice

ZhangLei

Jingtian&Gongcheng

CHINA

LawandPractice

Contributedby:

ZhangLei

Jingtian&Gongcheng

Contents

1.ProjectFinancePanoramap.5

1.1SponsorsandLendersp.5

1.2Public-PrivatePartnershipTransactionsp.5

1.3StructuringtheDealp.5

1.4ActiveIndustriesandSectorsp.5

2.GuaranteesandSecurityp.5

2.1AssetsAvailableasCollateraltoLendersp.5

2.2ChargesorInterestOverAllPresentandFutureAssetsofaCompanyp.6

2.3RegisteringCollateralSecurityInterestsp.6

2.4GrantingaValidSecurityInterestp.6

2.5RestrictionsontheGrantofSecurityorGuaranteesp.7

2.6AbsenceofOtherLiensp.7

2.7ReleasingFormsofSecurityp.7

3.Enforcementp.7

3.1EnforcementofCollateralbySecuredLenderp.7

3.2ForeignLawp.8

3.3JudgmentsofForeignCourtsp.9

3.4AForeignLender’sAbilitytoEnforcep.9

4.ForeignInvestmentp.9

4.1RestrictionsonForeignLendersGrantingLoansp.9

4.2RestrictionsontheGrantingofSecurityorGuaranteestoForeignLendersp.10

4.3ForeignInvestmentRegimep.10

4.4RestrictionsonPaymentsAbroadorRepatriationofCapitalp.10

4.5OffshoreForeignCurrencyAccountsp.10

5.StructuringandDocumentationConsiderationsp.11

5.1RegisteringorFilingFinancingofProjectAgreementsp.11

5.2LicenceRequirementsp.11

5.3AgentandTrustConceptsp.11

5.4CompetingSecurityInterestsp.11

5.5LocalLawRequirementsp.11

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6.BankruptcyandInsolvencyp.12

6.1CompanyReorganisationProceduresp.12

6.2ImpactofInsolvencyProcessp.13

6.3PriorityofCreditorsp.13

6.4RiskAreasforLendersp.13

6.5EntitiesExcludedFromBankruptcyProceedingsp.14

7.Insurancep.14

7.1Restrictions,Controls,Feesand/orTaxesonInsurancePoliciesp.14

7.2ForeignCreditorsp.14

8.Taxp.14

8.1WithholdingTaxp.14

8.2OtherTaxes,Duties,Chargesp.15

8.3LimitstotheAmountofInterestChargedp.15

9.ApplicableLawp.15

9.1ProjectAgreementsp.15

9.2FinancingAgreementsp.15

9.3DomesticLawsp.16

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Jingtian&Gongchengisoneofthefirstpri-vatepartnershiplawfirmsinChina.Sinceitsestablishment,Jingtian&Gongchenghasbeendedicatedtoprovidingclientswithhigh-qualityandefficientlegalservices,andhasgrownintooneofthetopfull-servicebusinesslawfirmsinChina.Thefirmisactiveinawidevarietyofpracticeareasandisrecognisedasanindustryleaderincapitalmarkets,bankingandfinance,M&A,outboundinvestment,disputeresolutionandprivateequity/venturecapitalinvestments.

Ithasalwaysbeendeeplycommittedtoservingitsclientsandmaximisingtheirinterests,andcanthereforeboastalonglistofmanyfirst-of-its-kindmattersinvariouspracticesandsec-tors.Jingtian&Gongchenghaswonnumerousawardsandrecommendationsfromleadinglegalpublications.ThefirmisheadquarteredinBeijing,withofficesstrategicallylocatedinShanghai,Shenzhen,Chengdu,Tianjin,Nan-jing,Hangzhou,Guangzhou,SanyaandHongKong.

Author

ZhangLeiisapartnerinthe

bankingandfinancedepartmentatJingtian&Gongcheng.He

hasbeenpractisinglawformorethan15years,andpreviously

workedatamagiccirclefirm

andtwotopChinesefirmsformanyyears.Hispracticefocusesmainlyonbankingand

finance,includingsyndicatedloans,bilateral

loans,acquisitionfinance,projectfinance,

exportcredit,disposalofnon-performing

loans,bankruptcyandinsolvencyaswellas

financialregulationandcompliance,etc.Mr

ZhangregularlyadvisesChinesebanks,foreignbanksandcorporateclients,andmostofhis

transactionsinvolveacross-borderaspect.HeisqualifiedtopractisePRClawandisfluentinChineseandEnglish.

Jingtian&Gongcheng

34/F

Tower3

ChinaCentralPlace

77JianguoRoad

Beijing100025

China

Tel:+861058091098

Fax:+861058091100

Email:zhang.lei@

Web:

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1.ProjectFinancePanorama

1.1SponsorsandLenders

Theprojectsponsorsarealmostalwaystheshareholdersoftheprojectcompany.Dependingontheindustry,theinstitutionsactingasspon-sorswillbedifferent,rangingfromstate-ownedenterprisestoprivateenterprises,andfromdomesticcorporatestointernationalcorporates.

LendersinvolvedinprojectfinancetransactionsinChinaaremainlybanks.Previously,foreignbankswerequiteactiveinthemarket,butinrecentyearsChinesebankshaveplayedamoreandmoreimportantroleinprojectfinancetrans-actions,whichincludesstate-ownedbanksandjointstockbanks.Exportcreditagencies,suchastheChinaExport&CreditInsuranceCorpo-ration(Sinosure),alsoplayasignificantroleinthemarket,byprovidingguaranteesandinsur-ances.SinosureprovidesinsurancesupportandissuesguaranteestocounterpartiesofChineseexport-orientedcompanies.

1.2Public-PrivatePartnershipTransactions

Public-privatepartnershiptransactionsarecom-monlyseeninpublicserviceindustries,suchasenergy,transport,environmentalprotection,agriculture,forestry,technology,government-subsidisedhousing,healthcare,educationandculture,etc.

Thelegislationapplicabletopublic-privatepart-nershiptransactionsincludes(withoutlimitation)theCivilCode,theBudgetLaw,theGovernmentProcurementLawandtheBiddingLaw.

1.3StructuringtheDeal

ThereareseveralmainissuesthatneedtobeconsideredwhenstructuringprojectfinancetransactionsinChina.

First,thepartiesneedtocarefullyconsiderthebasisonwhichthedealshouldbestructured:non-recourse,limitedrecourseorotherwise.Sponsorsnormallypreferanon-recourseorlimitedrecoursedeal.However,inmanyprojectfinancetransactions,thelenderswillrequireaguaranteeorothersecurityfromthesponsorseventhoughtheytakesecurityoverallthepro-jectassets.

Secondly,thecapitalratioisregulatedanddeter-minedbasedonthenatureoftheinvestmentprojectunderPRClaws.Generally,theminimumcapitalratiois25%butitvariesdependingonthenatureoftheinvestmentproject.Projectsponsorsneedtostructuretheirfinancialmodelcarefullysothatthecapitalratiorequirementdoesnotaffectthereturnoninvestedcapital.

1.4ActiveIndustriesandSectors

Industries/sectorsrelatingtotheso-calledNewInfrastructure–5G,DataCentre,AI,IndustrialInternetandIoT,etc–areexpectedtobemoreactiveinthecomingyear.

2.GuaranteesandSecurity

2.1AssetsAvailableasCollateralto

Lenders

UnderPRClaws,thefollowingtypesofassetsaretypicallyavailableascollateraltolenders:

•landuserightandbuildings;

•machinery,equipment,inventoryandothermovables;

•receivables;

•sharesinChinesecompanies;

•intellectualproperty;

•ships;

•aircrafts;and

•vehicles.

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Theformsthatsecuritytypicallytakesinthemarketincludeguarantee,pledgeandmortgage.

UnderPRClaws,securitycreatedovercertaintypesofassetsneedstoberegisteredattherelevantasset-basedregistryforperfectionpur-poses.Thesecurityperfectionrequirementsforthesetypesofassetsareasfollows:

•forlanduserightandbuildings–registrationatthelocalrealpropertyregistry;

•formachinery,equipment,inventoryandothermovables–onlineregistrationattheCredit

ReferenceCentreofthePeople’sBankofChina(PBOC);

•forreceivables–onlineregistrationattheCreditReferenceCentreofthePBOC;

•forsharesinChinesecompanies–dependingonthetypesofcompanywhosesharesare

pledged,registrationat:

(a)thelocalStateAdministrationforMarketSupervision;or

(b)thesecuritiesdepositoryandclearinginstitution;

•forintellectualproperty–registrationattherelevantIPregistry;

•forships–registrationatthelocalmaritimeregistry;

•foraircraft–registrationattheCivilAviationAdministrationofChina;and

•forvehicles–registrationatthelocalvehicleregistry.

Securitycanbecreatedinfavourofasecurityagentinsyndicatedloantransactions,asthesecurityagentconceptisgenerallyrecognisedinthePRC.Asecurityagentcanholdsecurity,enforcethesyndicate’srightsundertheloandocumentsandapplyanyenforcementpro-ceedsinaccordancewiththeinstructionsofthelendersinthesyndicate.

2.2ChargesorInterestOverAllPresentandFutureAssetsofaCompany

AChinesecompanycancreateafloatingmort-gageoveritsmachinery,equipment,rawmate-rialsandsemi-manufacturedproducts,aswellasitsfinishedproducts,boththosecurrentlyownedandthosetobeownedinthefuture.However,underPRClaws,itisnotgenerallypossibletocreateafloatingchargeoverallpre-sentandfutureassetsofacompany.Separateagreementsarerequiredtocreateasecurityovereachtypeofasset.

2.3RegisteringCollateralSecurityInterests

CostsassociatedwithregisteringcollateralsecurityinterestsinChinaareminimal,andtheborrowerusuallypaysthesecosts(ifany)direct-ly.Forexample,theregistrationfeeforsecurityoveralanduserightandbuildingsisCNY80orCNY550(dependingonthetypesoflanduserightandbuildings)foreachregistration;theregistrationfeeforsecurityoverreceivablesisCNY30perannumforeachregistration;andnoregistrationfeeispayableforsecurityovershares.

2.4GrantingaValidSecurityInterest

Totheextentpracticallypossible,itisalmostalwaysnecessarytoidentifyeachitemofcol-lateralinthesecuritydocumentindividuallyinordertograntavalidsecurityinterest.Itisnoteworthythatitmaynotbepossibletoindi-viduallyidentifyeachitemofcollateralforcertain

typesofsecurity,suchasafloatingmortgageovermachinery,equipment,rawmaterialsandsemi-manufacturedproducts,aswellasfinishedproducts(bothcurrentlyownedandtobeownedinthefuture).Inthiscase,ageneraldescrip-tionofthecollateralshouldbesufficient.Itisalsoadvisabletoconsulttherelevantsecurityregistryinadvanceregardingwhetherthecol-

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lateralneedstobeindividuallyidentifiedforthepurposeofsecurityperfection.

2.5RestrictionsontheGrantofSecurityorGuarantees

UnderPRClaws,therearetwotypesofcross-bordersecuritythatneedtoberegisteredwiththeStateAdministrationofForeignExchangeofthePRC(SAFE):

•NeiBaoWaiDai(NBWD)referstoafinanc-ingtransactionwhereboththeborrowerandthelender(s)arelocatedoutsideChina,whiletheguarantor/securityproviderislocatedinChina;and

•WaiBaoNeiDai(WBND)referstoafinanc-

ingtransactionwhereboththeborrowerandthelender(s)arelocatedinChina,whilethe

guarantor/securityproviderislocatedoutsideChina.

Othertypesofcross-bordersecurityaregener-allynotrequiredtoberegisteredwiththeSAFE.

Forexample,ifforeignlenderslendintoChinaandtakesecurityoverassetslocatedinChina,thesecurityisnotrequiredtoberegisteredwiththeSAFE.Inpractice,cross-bordersecurityreg-istrationmayneedtohavebeencompletedpriortotheapplicationofsecurityregistrationwiththerelevantasset-basedregistry,soitisadvisabletocheckwiththerelevantauthoritiesonacase-by-casebasis.

2.6AbsenceofOtherLiens

Lendersusuallyconductduediligenceagainstthecollateraloverwhichtheywilltakesecurity.Thisduediligencenormallyassesseswhetherthereareotherliensorrestrictionsonthecol-lateral,amongothermatters.Generally,liensarerecordedwiththerelevantsecurityregistryandthereforearesearchablefollowingthepre-

scribedprocedures(eg,theauthorisationofthecollateralownermayberequired).

2.7ReleasingFormsofSecurity

Generally,thepartiesmaychoosetheformofsecurityrelease,asthereisnorestrictioninthisregardunderPRClaws.Itshouldbenotedthat,ifasecurityreleaseformisrequiredtobesub-mittedtothesecurityregistryforthepurposeofderegisteringthesecurity,itisadvisabletocon-firmwiththesecurityregistrywhetherthereleaseformisacceptable.

3.Enforcement

3.1EnforcementofCollateralbySecuredLender

UnderPRClaws,asecuredlendercanenforceitscollateralifthedebtsecuredbythatcollateralisnotpaidwhendueandpayable,orifanothereventofdefaultprovidedinthefinancedocu-mentsoccurs.Generally,therearethreemeth-odsbywhichtoenforcecollateralinChina.

•First,asecuredlendercanreachanagree-

mentwiththesecurityprovidertoreceive

paymentbyconvertingthecollateralinto

valueorbyobtainingproceedsfromtheauc-tionorsaleofthecollateral.Whenconvertingthecollateralintovalueorsellingitoff,the

priceshouldbedeterminedbyreferencetothemarketprice.

•Secondly,asecuredlendercaninitiatealaw-suitatthecompetentPRCcourtifnoagree-mentcouldbereachedbythepartiesregard-ingthecollateralenforcement.PRClaws

provideaspecialcourtproceduretoenforcecollateral,throughwhichasecuredlender

canapplydirectlywiththecompetentPRC

courtforauctionorsaleofthecollateral.Afterexamination,ifthereisnosubstantialdispute

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betweenthepartiesregardingenforcement

ofthecollateralandtheconditionstoenforcethecollateralaresatisfied,thePRCcourt

shallruletoauctionorselloffthecollateral;ifasubstantialdisputeexistsbetweenthe

parties,thePRCcourtshallruletorejecttheapplication,andthesecuredlendermayiniti-ateanordinarycourtprocedure.

•Thirdly,asecuredlendercaninitiatean

ordinarycourtprocedureatthecompetent

PRCcourtifthePRCcourtrulestorejecttheapplicationforaspecialcourtprocedure.Of

course,thesecuredlendercanalsodirectly

initiateanordinarycourtprocedure(without

goingforaspecialcourtprocedurefirst).

Oncetheyhaveobtainedacourtjudgment

(oranarbitrationawardifarbitrationisthe

agreeddisputeresolutioninthesecurity

documents),thesecuredlendercanpresentittothecourtforenforcement.

Itisnoteworthythat,underPRClaws,thepar-tiescanhaveadebtinstrumentnotarisedbyanotaryofficeandobtainanotarialcertificatewhensigningtheinstrument.Debtinstrumentsthatcanbenotarisedincludebutarenotlim-itedtoloanagreements,securitydocuments,etc.Oncenotarised,thedebtinstrumentswillbegrantedenforceabilitybynotarisationunderPRClaws.Intheeventofdefault,thesecuredlendercanrequestthenotaryofficetoissueanenforcementcertificateregardingthenotarised

debtinstrument(eg,asecuritydocument)andapplydirectlytothecompetentPRCcourtforenforcementofthecollateral.

Itisgenerallypossibleforsecurityenforcementtobetakendirectlybyasecurityagent,unlessthesecuritydocumentprovidesotherwise.Asmentioned,asecurityagentcanholdsecurity,enforcethesyndicate’srightsundertheloandocumentsandapplyanyenforcementpro-

ceedsinaccordancewiththeinstructionsofthelendersinthesyndicate.

3.2ForeignLaw

Foraforeign-relatedcontract,PRClawsgener-allyallowthepartiestochoosethegoverninglawofthatcontract(PRClawsoraforeignlaw),exceptwherethechoiceofforeignlawviolatesmandatoryPRClegalprovisionsorwhereanyprovisionoftheforeignlawviolatesapublicpolicyofthePRCinthedeterminationofapar-ticularissue,inwhichcasePRClawswouldbetheapplicablelaws.UnderPRClaws,contractsareconsideredtobeforeign-relatedcontractswhen:

•eitherpartyorbothpartiestothecontractareforeignpersonsorforeignentities;

•thehabitualresidenceofeitherpartyorbothpartiestothecontractislocatedoutsidetheterritoryofthePRC;

•thesubjectmatterofthecontractisoutsidetheterritoryofthePRC;and

•thelegalfactthatleadstotheestablishment,changeorterminationofthecontractrelation-shiphappensoutsidetheterritoryofthePRC.

Basedonthis,forloanagreementsenteredintobetweenaChinesecompanyandforeignlenders,PRClawsgenerallyallowthepartiestochooseaforeignlawasthegoverninglaw(inparticular,Englishlaw),andPRCcourtswillgiveeffecttothechoiceofforeignlaw.Forsecuritydocuments,however,asamatterofthelexsitusdoctrine,thesecurityistypicallygovernedbyPRClaws,sincethesecurityassetislocatedinChina.

Generally,thesubmissiontoaforeignjurisdic-tionshouldbeupheldunderPRClaws,providedthatitdoesnotcontradictthemandatorylegal

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requirementsinChina,suchasthelegalrequire-mentregardingexclusivejurisdiction.

3.3JudgmentsofForeignCourts

UnderPRClawsandaccordingtotheinter-nationaltreatiesconcludedoraccededtobythePRCorbasedontheprincipleofreciproc-ity,PRCcourtsshallreviewanapplicationorapleadingfortherecognitionandenforcementofajudgmentrenderedbyaforeigncourt.If,uponreview,theforeignjudgmentneithercon-tradictsthefundamentalprinciplesofPRClawsnorviolatesstatesovereignty,securityorpub-licinterest,PRCcourtsshallruletorecogniseandenforcetheforeignjudgment.Chinaoffi-ciallysignedtheHagueConventiononChoiceofCourtAgreementsinSeptember2017,andisstillgoingthroughtheratificationprocedure.Todate,thereisnootherinternationaltreatyinrespectoftherecognitionandenforcementofjudgmentsbetweenthePRCandtheUKorUSA.

ChinaisamemberoftheConventionontheRecognitionandEnforcementofForeignArbitralAwards(ie,theNewYorkArbitrationConven-tion).Therefore,aforeignarbitralawardagainstaChinesecompanyshouldbeenforceableinChinaifthelegalprovisionsoftheArbitrationLawofthePRCarecompliedwith.

3.4AForeignLender’sAbilitytoEnforce

Generally,therearenosubstantiverestrictionsonaforeignlender’sabilitytoenforceitsrightsunderaloanorsecurityagreement.However,astheofficiallanguageinPRCcourtsisChinese,aforeignlenderwouldhavetoprepareandpre-sentaChinesetranslationofdocumentsfiledwithPRCcourts.Moreover,PRCcourtsgener-allyrequireaforeignlendertonotariseandlegal-iseitsconstitutionaldocuments,aswellasthepowerofattorneygrantedtoitslegalcounselinajudicialproceeding.

4.ForeignInvestment

4.1RestrictionsonForeignLenders

GrantingLoans

ThefollowingregulatoryrequirementswhenforeignlendersgrantloanswithinthePRCareworthmentioning.

ForeignDebtQuota

PursuanttotheregulationsofthePBOC,afor-eigndebtquotaisrequiredforaChinesebor-rowertotakeoutloansfromforeignlenders.Therisk-weightedoutstandingamountofallforeignloansborrowedbytheChineseborrowershallnotexceeditsforeigndebtquota.Theforeigndebtquotaiscalculatedasfollows:thebor-rower’scapitalornetassetsmultipliedbythecross-borderfinancingleverageratiomultipliedbythemacro-prudentialregulationparameter.

Dependingonthetypeofborrower,thecalcula-tionofforeigndebtquotaisdifferent:

•foranenterpriseborrower,thequotaiscalcu-latedbasedonitsnetassets,andthecross-borderfinancingleverageratiois2;

•forabankborrower,thequotaiscalculatedbasedonitsTier1capital,andtheleverageratiois0.8;and

•foranon-bankfinancialinstitution(eg,insur-ancecompanies),thequotaiscalculated

basedonitscapital,andtheleverageratiois1.

Currently,themacro-prudentialregulationparameteris1.5forbothfinancialinstitutionsandenterpriseborrowers.

NDRC56Registration

Forforeignloanswithatenorofmorethanoneyear,theborrowerisrequiredtoapplyforregis-trationinadvancewiththeNationalDevelopment

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andReformCommissionofthePRC(NDRC).ItisnoteworthythattheNDRC56registrationisrequirednotonlywheretheborrowerisaChi-neseenterprisebutalso,technically,wheretheborrowerisanoffshoresubsidiaryoranoffshorebranchcontrolledbyaChineseenterprise.

ForeignDebtRegistration

Afterthesigningoftheloanagreement,thebor-rowerisrequiredtoregistertheloanagreementwiththeSAFE.

4.2RestrictionsontheGrantingofSecurityorGuaranteestoForeignLenders

UnderPRClaws,therearetwotypesofcross-bordersecuritythatneedtoberegisteredwiththeSAFE:NBWDandWBND(see2.5Restric-tionsontheGrantofSecurityorGuarantees).Othertypesofcross-bordersecurityaregener-allynotrequiredtoberegisteredwiththeSAFE.Forexample,ifforeignlenderslendwithinChinaandtakesecurityoverassetslocatedinChina,thesecurityisnotrequiredtoberegisteredwiththeSAFE.

Inaddition,securitycreatedovercertaintypesofassetslocatedinthePRCneedstobereg-isteredattherelevantasset-basedregistryforperfectionpurposes;see2.1AssetsAvailableasCollateraltoLendersfordetails.

4.3ForeignInvestmentRegime

AccordingtotheForeignInvestmentLawofthePRC,whichwaspromulgatedon15March2019andcameintoforceon1January2020,ChinaappliestheNationalTreatmentPrincipleplusanegativelisttoforeigninvestment.ThismeansthatforeigninvestorsandChineseinvestorsaregenerallytreatedequally,providedthat:

•aforeigninvestordoesnotinvestinanindus-tryorsectorthatisprohibitedbytheforeigninvestmentnegativelist;and

•aforeigninvestorsatisfiescertainconditionswheninvestinginanindustryorsectorthatisrestrictedbytheforeigninvestmentnegativelist.

Inaddition,ChinaisamemberoftheWorldTradeOrganization,andhasenteredintomorethan130bilateralinvestmenttreatiesandmorethan100doubletaxtreatieswithothercountries.

4.4RestrictionsonPaymentsAbroadorRepatriationofCapital

Generally,therearenorestrictionsonpaymentsabroadortherepatriationofcapitalbyforeigninvestors.AccordingtoPRClaws,aforeigninvestormayfreelyremitintooroutofChinaitscapitalcontributions,profits,capitalgains,pro-ceedsfromthedispositionofassetsandpro-ceedsfromliquidation,whetherinCNYorinaforeigncurrency.

4.5OffshoreForeignCurrencyAccounts

Typically,aprojectcompanywillmaintainitsCNYaccount(s)and/orforeigncurrencyaccount(s)onshorewithChinesebanks.Inseveralcircum-stances(suchasforthepurposeofcollectingoffshorerevenueproceeds,ormakingpaymentofexpendituresoutsideChina),PRClawsallowaprojectcompanytomaintainoffshoreforeigncurrencyaccounts,providedthattheprojectcompanyappliesforandobtainsapprovalfromtheSAFEinadvance.

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5.StructuringandDocumentationConsiderations

5.1RegisteringorFilingFinancingof

ProjectAgreements

Thefollowingregistration/filingrequirementsapplytofinancingagreements.

NDRC56Registration

Forforeignloanswithatenorofmorethanoneyear,theborrowerisrequiredtoapplyforregis-trationinadvancewiththeNDRC.Itisnotewor-thythattheNDRC56registrationisrequirednotonlywheretheborrowerisaChineseenterprisebutalso,technically,wheretheborrowerisanoffshoresubsidiaryoranoffshorebranchcon-trolledbyaChineseenterprise.

ForeignDebtRegistration

Afterthesigningoftheloanagreement,thebor-rowerisrequiredtoregistertheloanagreementwiththeSAFE.

Cross-BorderSecurityRegistration

UnderPRClaws,therearetwotypesofcross-bordersecuritythatneedtoberegisteredwiththeSAFE:NBWDandWBND(see2.5Restric-tionsontheGrantofSecurityorGuarantees).

Inaddition,securitycreatedovercertaintypesofassetslocatedinthePRCneedstobereg-isteredintherelevantasset-basedregistryforperfectionpurposes;see2.1AssetsAvailableasCollateraltoLendersfordetails.

5.2LicenceRequirements

InChina,landandnaturalresourcesaregen-erallyownedbythestate.Individualsorenter-prisescanbegrantedtheusufructinordertouseoroperatesuchassets;alicenceoracer-tificate(suchasaland-usecertificate)willberequiredinthisrespect.However,foreignenti-

tiesarerestrictedfromholdingtheusufructoflandornaturalresourcesdirectly.Asrequiredbytheprincipleofcommercialpresence,foreignentitiesneedtoestablishaforeigninvestmententerpriseinChinainordertoundertakerelevantbusinessoroperatesuchassets.

5.3AgentandTrustConcepts

Thesecurityagentconceptisgenerallyrecog-nisedinthePRCandasecurityagentcanholdsecurity,enforcethesyndicate’srightsundertheloandocumentsandapplyanyenforcementpro-ceedsinaccordancewiththeinstructionsofthelendersinthesyndicate.

5.4CompetingSecurityInterests

Wheresecurityinterestscompetewitheachother,prioritywillbedeterminedbasedonthetimewhenthesecurityinterestisperfected:thesecurityinterestthatisperfectedearlierwillhavepriorityoverthatwhichisperfectedlater.

Whereasponsorinjectsequitybywayofsubor-dinateddebt,theprojectfinancelendersusuallyprocureasubordinationundertakingfromthatsponsor.ThiskindofcontractualsubordinationprovisionshouldgenerallybeupheldbythePRCcourt,eveninthecaseoftheinsolvencyoftheborrower,providedthatthecontractualsubordi-nationprovisionsdonotviolatetherulesgovern-ingthepriorityofcompetingsecurityinterestsunderPRClaws.

5.5LocalLawRequirements

PRClawsdonotgenerallyrequireaprojectcompanytobeorganisedund