China liberalisation crucial for keepwell deeds

Although the enforceability of keepwell agreements remains untested in a restructuring scenario, the credibility of these credit support structures is improving.

The liberalisation of China’s markets is offering hope to an area of finance for mainland groups that has hitherto drawn caution from investors the keepwell deed.

Keepwell deeds are essentially a contract between a parent company and its subsidiary to maintain solvency and financial backing throughout the term set in agreement typically involving an offshore group company issuing debt, with credit support provided by the onshore group or third-party.

These structures were arguably constructed to circumvent regulatory restrictions that prevent onshore Chinese entities from providing guarantees to offshore entities.

For the year to-date, there have been seven Chinese deals with keepwell deeds totalling more...

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