HONG KONG SAR, CHINA Law and Practice Contributed by: Doos Choi, Pierre Dzakpasu, Ester Chow and Aditya Kurtakoti, Mayer Brown
3.5 Debt Buyback This is a matter for negotiation on a case-by- case basis. 3.6 Recent Legal and Commercial Developments There are no recent legal or commercial devel - opments that have required changes to legal documentation. Some private credit funds prefer to provide their investment in the form of notes rather than loans, but this tends to be more a Junior tranches which are introduced to pre- existing structures are typically holdco loans without any direct recourse to the underly - ing assets or business, usually because such assets and business have already been secured in favour of the first-ranking senior tranche. As a commercial matter, such senior lenders will rarely consent to second-ranking claims even if an intercreditor agreement is proposed. matter of form over substance. 3.7 Junior and Hybrid Capital If a financing is originated with a multi-tiered financing solution in mind, then whether the junior tranche will benefit from second-ranking guarantees and security will vary on a case-by- case basis. Some or all of the junior tranche may be in the form of a convertible and/or carry an equity warrant. 3.8 Payment in Kind/Amortisation Private credit transactions in Asia are usually structured as bullet term loans. Whether there is any current pay will depend on the asset or business being financed, but payment-in-kind structures are regularly seen. 3.9 Call Protection Other than to say that call protection in some shape or form is a common feature, there is no
universal market standard on call protection for private credit investments. The precise terms will be negotiated on a deal-by-deal basis.
4. Tax Considerations 4.1 Withholding Tax
There is generally no withholding tax payable on principal repayments or interest payments under loans or notes in Hong Kong. 4.2 Other Taxes, Duties, Charges or Tax Considerations There are nominal charges for registering certain types of security at the Hong Kong Companies Registry and Hong Kong Land Registry. 4.3 Tax Concerns for Foreign Lenders Interest paid to foreign private credit lenders is generally not tax deductible in Hong Kong for a There are presently no specific tax incentives available for private credit lenders lending into Hong Kong. However, in November 2024, the Hong Kong government released a consulta - tion paper proposing certain changes to the tax regime with the aim of advancing Hong Kong’s attractiveness to private credit lenders. These proposed changes include expanding the list of qualifying assets under the “unified fund exemp - tion” regime to include loans and private credit investments as well as the interest income from such investments, such that those transactions would be eligible for the profits tax exemption under the unified fund exemption regime. It remains to be seen to what extent the relevant proposals will be implemented. Hong Kong borrower. 4.4 Tax Incentives
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