Structuring options for foreign fund sponsors in China

Insights and Analysis

Structuring options for foreign fund sponsors in China

11 June 2021

China's burgeoning private debt market offers significant opportunities for foreign private credit sponsors. Even before the pandemic, many Chinese companies were in acute need of debt financing. For many offshore debt sponsors experiencing challenges in using offshore funds, the solution may be to use an onshore structure. We look at onshore structuring options and explore why some structures may be more suitable to sponsors structuring private credit investments in a particular way.

China's burgeoning private debt market offers significant potential for foreign private credit sponsors. Even before the distress created by COVIDâ€‘19, many Chinese companies were in acute need of debt financing. Encouraged by a slew of openingâ€‘up policies favorable to foreign debt funds put forward by China, an increasing number of private credit sponsors are setting their sights on the Chinese debt market.

In our publication Investing in China's Debt Market: Opportunities for Foreign Investors, we explored some of the difficulties offshore private credit sponsors may experience in structuring their debt investments in PRC corporates through offshore funds, including the potential difficulties of taking effective security.

For many offshore debt sponsors, the solution to overcoming these hurdles is to use an onshore structure. In this update, we take a closer look at these onshore structuring options, their key features, and why some structures may be more suitable to sponsors structuring private credit investments in a particular way.

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Authored by Jonathan Leitch, Andrew McGinty, James Wood, Shantay Cong, Weiying Zhang, and Nigel Sharman.