Taking Security from PRC Subsidiaries

Often in the global financing of a multinational group, the ultimate holding company acts as the major borrower to administer the borrowing and liaise with lenders. After drawdown with lenders, the ultimate holding company will distribute the borrowed proceeds among group members. Under a pyramid shareholding structure, the assets that are easily realizable and enforceable stay close with the members at the bottom, and far away from access by the ultimate holding company at the peak of the structure. Lenders therefore would usually ask for security provided by these subsidiaries to back up the borrowing by the ultimate holding company. Thanks to China's booming economy, PRC subsidiaries are not only playing a more and more important role in the global strategy of multinational groups but also are highly valued by lenders to be eligible security providers. An unavoidable reality that must be faced is the restrictions placed by China's foreign exchange control regime on the ability of these PRC subsidiaries to supply efficient security.