To optimise the regulatory framework for corporate bond issuance and financing, step up the transparency of bond review and promote high-quality market development, the Shanghai Stock Exchange (SSE) issued the Guidelines No. 3 for the Application of Rules for Review of Corporate Bond Issuance and Listing – Key Review Focuses on 28 March 2025.
Drawing on the Guidelines No. 3 and the practical experience of lawyers at Guantao Law Firm’s Shanghai office in handling corporate bond issuances, this article shares the key legal review focus areas for corporate bond issuance at the SSE and provides approaches for responding to feedback from the exchange, should it arise.
Legal review issues
Partner
Guantao Law Firm
Tel: +86 136 8183 1747
E-mail: baowh@guantao.com
Drawing on the annex to the Guidelines No. 3 and its provisions requiring separate legal opinions, as well as common elements found in legal opinions for corporate bond issuances, lawyers at Guantao have summarised below the key legal review focus areas highlighted in the guidelines:
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- Whether, during the reporting period, the issuer and its controlling shareholders, actual controllers, directors, supervisors (if any), senior management, as well as intermediary institutions and their relevant personnel providing services for the current issuance, have been investigated by competent authorities for suspected legal or regulatory violations, subjected to enforcement measures, found to have dishonest conduct or, within the past three years, have been identified by authorities as having committed bribery crimes or engaged in bribery;
- Whether the issuer’s equity controlled by the controlling shareholders or actual controllers is subject to a high level of pledging, freezing or is involved in litigation or arbitration, and whether such circumstances could undermine the stability of the issuer’s equity structure;
- Whether, during the reporting period, the issuer’s directors and senior management have experienced frequent changes or a significant proportion of turnover, and whether the current directors, supervisors and senior management meet the appointment procedures and qualification requirements set out in the issuer’s articles of association;
- Whether the issuer has provided large external guarantees or mutual guarantees. If such guarantees exist, further verification is required regarding key elements such as the principal amount of the debt, as well as the scope and duration of the guarantee;
- Whether the issuer’s funds are subject to centralised collection and unified management. If so, further investigation is needed into the details of how the funds are collected and managed centrally;
- Whether, during the reporting period, the issuer has experienced any defaults or delayed payments on corporate bonds or other debts or has been involved in risk-related bond situations. If such issues exist, whether they have been rectified; and
- Whether, during the reporting period, the issuer has experienced any downgrades in its credit rating.
Addressing SSE feedback
Feedback on equity pledge. If the SSE raises questions regarding the issuer’s equity pledge situation, a supplementary investigation in this area usually becomes necessary. This investigation includes, but is not limited to, obtaining basic information of the pledgee and the principal debt, the scope and duration of the guarantee, circumstances that would trigger the realisation of the pledge, and providing an opinion on each item.
To demonstrate that the equity pledge does not have a significant adverse impact on the current bond issuance, it is common practice to require the pledgee to issue a written consent letter agreeing to the bond issuance. This letter should be disclosed as a supplementary document in response to the SSE’s inquiries.
Feedback on compliance with related party transactions. If the SSE raises questions about the compliance of the issuer’s related party transactions, it is necessary to further review the internal decision-making procedures for the transaction (such as whether the relevant personnel have recused themselves as required) and whether the transaction price is fair.
If the related party transaction has not been evaluated, an evaluation should be conducted and an evaluation report provided. If there are flaws in the review process, it is recommended to conduct a new review altogether.
Feedback on the use of proceeds. If the SSE raises questions about the clarity or potential misappropriation of the use of proceeds, the issuer should supplement and clarify the details of fund usage based on the materials provided. This may include providing specific project names, detailed breakdowns of fund usage, and the progress of fund utilisation.
In addition, the issuer may be required to make a commitment that the use of proceeds will comply with relevant approval documents and announcements, and that the intended use of public funds will not be changed.
Feedback on large pending litigation. If the SSE raises concerns in its feedback about the impact of significant pending litigation on the current bond issuance, it is necessary to address the amount involved in the litigation, the progress of the proceedings, and whether any assets are subject to preservation measures. The issuer may also be required to provide a statement explaining whether the litigation or any preserved assets will affect its normal operations.
Feedback on historical penalties. If the SSE raises concerns in its feedback about the impact of the issuer’s historical penalties and negative information on the current bond issuance, the issuer can be required to provide details of any significant administrative penalties received in the past three years. The issuer should also confirm whether there are circumstances such as insolvency, business suspension, being listed as untrustworthy or being included on a major tax violation list.
In addition, the issuer may be required to provide supplementary rectification proof documents, bank transfer receipts and administrative authority receipts. These materials serve to demonstrate that the historical penalties have been fully rectified,, and that there are currently no ongoing administrative penalties.
Bao Weihua is a partner at Guantao Law Firm. She can be contacted by phone at +86 136 8183 1747 and by email at baowh@guantao.com
