Newsletter
FINANCIAL DEBENTURE ISSU-ANCE REGULATIONS AMENDED
To clarify doubts over whether banks may issue convertible financial debentures, exchangeable financial debentures, and subordinated financial debentures, and to expand the fundraising channels available to banks, on 13 May 2003 the Ministry of Finance (MOF) promulgated the amended Regulations Governing the Issuance of Financial Debentures by Banks. The main points of the amendments are as follows:
The old regulations did not define whether fi-nancial debentures included convertible financial debentures, exchangeable financial debentures, and subordinated financial debentures, and this has led to disputes in practice. For the sake of clarity, the new regulations explicitly provide that financial debentures include straight finan-cial debentures, subordinated financial deben-tures, convertible financial debentures, ex-changeable financial debentures, and other types of financial debenture approved by the regula-tory authority. The amendments also introduce a definition of financial debentures. The provision under the old regulations that the tenor of a fi-nancial debenture must not be less than two years is retained, but the provision that the tenor must not exceed 20 years is abolished.
The approval time of an issuance of straight fi-nancial debentures or subordinated financial debentures is 15 working days after all applica-tion documents are filed with the Bureau of Monetary Affairs. For issuances of convertible financial debentures, exchangeable financial debentures, and other types of financial deben-ture approved by the regulatory authority, the maximum approval time is 30 working days.
The old regulations defined four sets of circum-stances under which the issuance of financial debentures was forbidden, including (a) if the bank had accumulated losses during the ac-counting year preceding the issuance application, and (b) if the bank's overdue loans ratio in the quarter preceding the application was higher than the average for all financial institutions. The new regulations relaxed the above two restric-tions: a bank that accumulated losses in the pre-ceding year may still issue financial debentures if the losses were due to writing-off of non-performing loans in order to improve the bank's soundness, or due to the bank's issuing shares at a discount; and a bank that had an overdue loans ratio above the average for all fi-nancial institutions in the quarter preceding the application, may still issue financial debentures if its writing-off of non-performing loans has caused its ratio of equity capital to risk capital to fall below the level required by the Banking Law, and it intends to issue the financial debentures in order to increase the ratio above the required level.
In the amended regulations, the fact that a bank's financial projections predict losses for the year of application has been removed as a circumstance under which the MOF may return an application unprocessed.