The China Securities Regulatory Commission (CSRC) promulgated two sets of guidelines in relation to bond issuance on 20 June 2023, namely “Guiding Opinions on Deepening the Reform of Bond Registration System” and “Guiding Opinions on Raising the Quality of Bond Business Practice by Intermediaries under the Registration System” (collectively, the Guidelines).
Given CSRC is no longer acting as a pre-vetting regulator under the registration regime, the obligations to ensure quality disclosure to investors are shifted to the issuers, stock exchanges, and intermediaries. In the Guidelines, CSRC summarizes issues spotted in review of the registration applications under the new registration regime of bond issuance since 2020 and provides guidance to the issuers, stock exchanges, underwriters, and other intermediaries, such as credit rating agencies, law firms, and accounting firms. CSRC is emphasizing the quality of disclosure in offering documents and post-offering regular disclosure, in particular the solvency of the issuer. The Guidelines also require the issuer to plan the use of proceeds and avoid overly high leverage levels.
Underwriters and other intermediaries are required to improve their service quality and risk control mechanism in bond issuance to ensure the quality of the issuer and reasonable leverage level so as to mitigate the solvency risks. For example, the due diligence of the issuer shall focus on whether the use of proceeds is in line with the national macro-control policies and industrial policies; whether the issuer has major issues that are unprecedented, sensitive, have significant public impact, or have significant impact on the solvency of the issuer; or whether the issuer is breaching laws and regulations.