CHINA Law and Practice Contributed by: Nancy Zhang, Xiaoying Tian, Qian Gu and Liangqian Ying, JunHe LLP
3. Real Estate Finance 3.1 Financing Acquisitions of Commercial Real Estate
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,
If commercial real estate is acquired by an onshore entity (including a foreign-invested enterprise), generally the onshore entity may seek financing from banks within the PRC, subject to certain restrictions required by the National Financial Regulatory Administration. If the onshore entity intends to arrange loans from offshore bank(s) or offshore entities, including shareholder(s), to acquire a commercial real estate, it must meet the requirements and restraints in relation to for - eign debt under the PRC laws. Currently, no real estate companies are allowed to arrange loans from offshore, except for foreign-invested real estate companies incorporated prior to 1 June 2007. Offshore Acquisition and Onshore Fixed- Asset Loans Where a foreign investor acquires commercial real estate through an equity deal (by acquiring equity interest in the onshore company holding the real estate), the most common financing 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.
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