The People's Bank of China (PBOC) and SAFE issued the Urgent Notice on the prohibition of the Prepayment of Forex Loans in August 1998 making it illegal for Chinese companies (including FIEs) to purchase Forex with RMB for the early repayment of Forex loans.
Furthermore, in the absence of prepayment provisions in the loan agreement, prepayments are prohibited. If prepayments are provided for, they may be made only with a lender's own Forex reserves. However, it is unclear under the new rules whether or not the acceleration of a loan by a lender will be viewed as prepayment. Since the new regulations neglect to deal with the issue of acceleration, foreign lenders may have reason to be concerned about their ability to achieve early loan repayment in default situations.
The People's Bank of China (PBOC) and SAFE issued the Urgent Notice on the prohibition of the Prepayment of Forex Loans in August 1998 making it illegal for Chinese companies (including FIEs) to purchase Forex with RMB for the early repayment of Forex loans.
Furthermore, in the absence of prepayment provisions in the loan agreement, prepayments are prohibited. If prepayments are provided for, they may be made only with a lender's own Forex reserves. However, it is unclear under the new rules whether or not the acceleration of a loan by a lender will be viewed as prepayment. Since the new regulations neglect to deal with the issue of acceleration, foreign lenders may have reason to be concerned about their ability to achieve early loan repayment in default situations.
