CHINA Law and Practice Contributed by: Nancy Zhang, Xiaoying Tian, Qian Gu and Liangqian Ying, JunHe
structure is an offshore acquisition loan accom - panied by an onshore fixed-asset loan in renmin - bi. The offshore acquisition loan is extended by an offshore bank to the offshore buyer to pay for the equity/share purchase price in the same cur - rency as that of the equity/share purchase price, secured by a pledge over the equity interest in the onshore target company acquired by the buyer. The onshore fixed-asset loan is generally extended to the onshore target company by an onshore subsidiary of the offshore bank, secured by a mortgage over the real estate owned by the onshore target company. 3.2 Typical Security Created by Commercial Investors Where a commercial real estate investor that intends to acquire or develop real estate, acquires a loan from a lender, it will usually be required to provide the following forms of secu - rity: • the mortgage over the real estate; • the pledge of the equity interest of the target or project company by such investor; • the guarantee made by the investor; • the pledge of the account receivables, which are usually the rental proceeds generated from the real estate; and • the agreement for the transfer of interests in material contracts, which generally include material lease contracts, the property man - agement contract, asset management con - tract and insurance policies in relation to the real estate. 3.3 Restrictions on Granting Security Over Real Estate to Foreign Lenders Although the PRC laws do not prohibit an off - shore lender from being the mortgagee of real estate collateral, in practice, certain local real estate registration centres, which serve as the
competent authority in charge of real estate mortgage registration, such as in Xiamen, refuse to register an offshore entity (including offshore banks) as the mortgagee. Therefore, in terms of practicality, it may not be possible to register a mortgage in favour of offshore lenders in certain localities, resulting in a failure to create an effec - tive mortgage. A borrower is generally able to make repayments to its offshore lender without further restrictions, provided that they have completed the relevant foreign exchange regulatory formalities for the cross-border loan (including, but not limited to, the registration of such cross-border loan) in accordance with the PRC laws. 3.4 Taxes or Fees Relating to the Granting and Enforcement of Security If a mortgage is created over real estate, both the mortgagor and the mortgagee are obliged to pay stamp duty for the mortgage contract at a tax rate of 0.05% each of the secured debt. A mini - mal registration fee for a real estate mortgage (CNY80 for residential property and CNY550 for non-residential property, per registration) is charged by the registration authority and often borne by the mortgagee. Furthermore, if the mortgagor and mortgagee agree in the mortgage contract to an enforce - ment notarisation, a fee for enforcement notari - sation may be incurred, which is usually borne by the mortgagor. Such fee is charged by the notary public office at a rate equal to an agreed percentage of the amount of the secured debt, which may vary at different localities. 3.5 Legal Requirements Before an Entity Can Give Valid Security Under PRC laws, certain real estate may not be used as collateral to secure a debt, such as land
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