Trade Alert - October 2015, Issue 22

Hong Kong

Hong Kong is the second largest loan market behind China in the Asia-Pacific region (excluding Japan). Despite this, Reuters have recently published a review which reveals that syndicated loan volumes in the region have fallen 16% to USD 324 billion in 2015 YTD. This drop in volume is partly attributable to the devaluation of the Chinese renminbi in August which added to the pressure the Asia-Pacific loan market is experiencing due to economic slow-down in the region.

Mergers & Acquisitions activity has accounted for 10% of Asia-Pacific (excluding Japan) loan volumes in 2015 YTD with related loan financings standing at USD 30.8 billion over 47 deals (Hong Kong has contributed over 40%).

The Bank of China Hong Kong is the lead mandated arranger with 57 deals in the region equating to USD 7,896,794,536 (12.09% market share) and is also the lead bookrunner with 18 deals totalling USD 6,620,353,362 (18.50% market share) in 2015 YTD.

This month’s trade alert sets out some of the key considerations for loan traders investing in Hong Kong.


Hong Kong has an active bilateral loan market and the Asia Pacific Loan Market Association (“APLMA”) publishes primary forms of facility agreements under English law, Hong Kong law and Singapore law.

Hong Kong retains the common law system inherited as a former British colony and, in addition, secondary trades are generally documented under English law Loan Market Association secondary trading documents.


Under the Money Lenders Ordinance (Cap. 163), any person that carries on the business of making loans in Hong Kong must be licensed as a “money lender”, with exemptions for (i) institutions holding a Hong Kong banking licence under the Banking Ordinance (Cap. 155), and (ii) banks incorporated outside of Hong Kong and regulated by an overseas banking supervisory authority. The acquisition of a funded term loan or the one-off acquisition of a revolving credit facility commitment should not be subject to such licensing requirements. However, further analysis would need to be undertaken if this is done on a more frequent basis.


A buyer of debt in Hong Kong will not automatically be entitled to the benefit of any security or guarantees attached to the debt.  However the loan documentation would normally provide for the transfer of the security or guarantees into the buyer’s name.

Trust and agency relationships are well-recognised concepts in Hong Kong.  It is common practice for one of the syndicate banks to act as security trustee holding security on behalf of all secured lenders. This enables changes in the beneficiaries of the security without re-registration and allows for the administration and realisation of the security by the security trustee on behalf of all of the secured creditors.

In case of insolvency of a security agent, where the agent holds the security as trustee on behalf of all secured creditors, the security will not fall into the insolvent estate of the security agent.


Assignment and novation are the key methods of loan transfer in Hong Kong.

As no consent requirement applies under Hong Kong law, provided that the loan agreement does not contain a prohibition on assignment or a consent requirement, a lender can assign a loan to a new lender without the need for consent from the borrower.  A legal assignment ensures the most effective standing for a new lender to enforce the loan (without enjoining its predecessor-in-title).

The APLMA form facility agreement for a term loan expressly states that borrower consent is not required for any assignment or novation. However, the APLMA form facility agreement for a revolving loan requires borrower consent for any assignment or novation of its available commitment to a new lender.


There is currently no withholding tax levied on interest payable on loans, proceeds of a claim made under a guarantee or proceeds of enforcing security to either a foreign or domestic lender.

Stamp duty rarely arises in a secondary loan trading context and is generally not payable on the creation, transfer or enforcement of a facility agreement. However, the Stamp Duty Ordinance (Cap. 117) provides that stamp duty is chargeable for transfers of interests in land, debt instruments in bearer form and shares

Since October 2012, Hong Kong has applied a Buyer’s Stamp Duty rate of 15% (of the stated consideration paid or market value, whichever is higher) on real estate acquisitions for purchasers who are not residents of Hong Kong. This is in addition to a Special Stamp Duty, imposed on property disposals within a certain period of its acquisition.


Hong Kong does not impose any transfer tax on a foreign lender acquiring the debt of a domestic borrower.

Hong Kong has entered into comprehensive double tax treaties with 32 countries and additionally limited double taxation agreements and tax information exchange agreements with a further number of countries. Most of the agreements are based on the OECD model treaty.


Loan transfers are not subject to perfection requirements other than notifying the borrower of an assignment (in order to create a legal rather than equitable assignment). Where the borrowers, guarantors or underlying security are located offshore (for example, in BVI or Cayman Islands) or onshore in the PRC - the post completion requirements of those jurisdictions should be taken into account.

Depending on the type of underlying secured asset involved, failure to comply with applicable registration formalities may result in a loss of priority over other claims made by subsequent secured creditors with security over the relevant asset. Therefore it is important to review each security asset on an individual case-by-case basis to ensure that correct registration has taken place. For example, security over real estate assets located in Hong Kong must be registered with the Hong Kong Land Registry within one month to protect priority.

Security documents are not required to be notarised in Hong Kong and, apart from nominal registration fees with each relevant registry, there are no other post completion requirements that a lender should be aware of in respect of loan and security transfers in Hong Kong.


The implementation of the new Competition Ordinance (Chapter 619 of the Laws of Hong Kong) (the "Competition Ordinance") on 14 December 2015, being the first time that Hong Kong has had a general and cross-sector competition law, will herald a new era for businesses in Hong Kong. Part I and Part II of this Memo provide an overview of the new competition regime in Hong Kong.

O.W. Bunker A/S - US Debtors

On 14 October 2015 O.W. Bunker North America Inc. (“OWB NA”), O.W. Bunker USA Inc. (“OWB USA”), and their parent O.W. Bunker Holding North America Inc. (“OWB Holding”), together the “US Debtors”, filed a proposed Chapter 11 Plan (the "Plan") and Disclosure Statement in their jointly administered Chapter 11 cases. The US Debtors also filed a motion seeking approval of a settlement between OWB Holding and ING Bank N.V. (as security agent) under which:

  1. The US Debtors’ adversary proceeding challenging ING Bank N.V.’s liens will be dismissed.

  2. ING Bank N.V.’s asserted $648,246,240 in secured claims against OWB NA and OWB USA will be allowed as general unsecured claims (except to the extent of the value of certain insurance receivables pledged to ING Bank N.V. - which will be treated as secured claims and which the US Debtors do not believe have any significant value).

  3. ING Bank N.V.’s asserted unsecured claims against OWB NA and OWB USA (each as assignee of intercompany receivables) will be allowed as general unsecured claims in amounts estimated at $67.8 million and $86.0 million respectively.

On 26 October 2015 the US Debtors filed an Amended Disclosure Statement and on 29 October 2015 the Bankruptcy Court entered an order approving it and scheduling the hearing on confirmation of the Plan for 10 December 2015.

Please click here to view further details of the Chapter 11 Plan and Disclosure Statement.

Special Note:
Special thanks to Terris Tang, Special Counsel in Cadwalader's Hong Kong office, who assisted with this Trade Alert.

LMA Standard Terms and Conditions

Notarial fees – Who pays?

A notary can be required to witness the execution of certain contracts when transferring loans and the role of the notary will depend on the jurisdiction of the borrower, governing law of the loan and the nature and location of security.

In Spain, for example, the notarisation of a credit purchase agreement will provide full evidence of its content and signing date and will also allow the parties to enforce their rights under such agreement through an expedited enforcement proceeding.

Why do you have to sign public deeds before a notary?

The requirement to notarise a document is generally a matter of local law, and may not always be expressly prescribed for under the terms of the loan agreement or security documentation. Costs vary depending on the jurisdiction and fees may be calculated by reference to the secured amount of the loan. This is therefore a material consideration for property loan portfolios in Spain.

Under Spanish law a notary’s signature is required to ‘elevate’ a private contract to a public deed when the assigned credit is secured by mortgages or non-possessory pledges in order to register the assignment in the relevant public registries, which gives the buyer protection against competing liens and certain enforcement rights against the borrower. The notary’s fees will typically range from EUR 600 to EUR 3,000 when assigning a single unsecured credit or claim. Fees increase for the assignment of a secured loan or claims depending on the collateral securing such credits. Notarial fees are in addition to stamp duty that may apply at up to 1.5% of the secured liabilities on an assignment of a mortgage, depending on the region.

At the time of publication, the LMA Secondary Documentation Committee is still finalising the standard terms relating to who bears the costs of notarial fees. The current proposal is for the buyer and seller to split such costs where they are set out in the contract, but if the loan agreement or security documentation is silent as to notarial fees, the buyer would pay.

What else is new in the LMA Terms & Conditions?

Other than notarial fees, the amendments address, inter alia, (i) clarification that neither party acts as fiduciary or custodian of the other, for example, in respect of any non-cash distributions and (ii) the User Guide recommends that if negative IBOR rates apply, parties can agree, at time of trade, a “zero IBOR floor” to prevent a situation where a seller is required to pay the buyer cost of carry under the Delayed Settlement Compensation calculation.

The revised Standard Terms and Conditions, Trade Confirmation, Participation Agreement and User Guide that will apply to all trades with Trade Date 11 November 2015 onwards are pending final publication. We will provide an update in due course.



On 28 October 2015, the Central Bank of Iceland and the Ministry of Finance and Economic Affairs (the “Ministry”) announced that the draft composition agreements submitted by the estates of LBI, Glitnir and Kaupthing satisfy the requirements set forth in Article 7 of the Foreign Exchange Act (no. 87/1992) (the “Act”). It has been agreed that the implementation of the composition agreements together with the proposed mitigating measures will not jeopardise monetary, exchange rate or financial stability. The required consultations pursuant to Article 13 of the Act have taken place and the Minister of Finance and Economic Affairs has presented the conclusions before the Parliamentary Economic Affairs and Trade Committee.

According to a presentation from the Ministry, the government now intends to propose amendments to the legislation governing the process to extend the deadline for court approval of composition agreements until 15 March 2016.

Please click the following links to review copies of the press releases from the Ministry of Finance and Economic Affairs and the Central Bank of Iceland.

  1. LBI Hf: The next creditors’ meeting will be held on 17 November 2015.  Creditors will vote on the composition proposal on this date. Further announcements regarding the agenda for the meeting are expected at the end of October.

Transfers: The Winding-Up Board has not yet announced any transfer cut-off date.

  1. Kaupthing: An open creditors’ meeting was held in Reykjavik on 30 September 2015 where creditors had the opportunity to vote on various resolutions regarding the Composition Agreement.

Kaupthing is convening two open creditors’ meetings in November including (i) a creditors’ meeting on or around 11 November 2015 to provide an update on the composition process and to seek creditor approval in relation to the revised Stability Contribution; and (ii) subject to creditor support at the first meeting, a vote will be held on the composition proposal at a second open creditors’ meeting to be held on 24 November 2015.

Transfers: Following the transfer cut-off date of 2 October 2015, Claim Transfer Request Forms are no longer being processed and no new Notices of Successful Transfer will be issued.

  1. Glitnir Bank: The Winding-Up Board is yet to announce the date of the next creditors’ meeting.

Transfers: Following the transfer cut-off date of 11 September 2015, Claim Transfer Request Forms are no longer being processed and no new Notices of Successful Transfer will be issued.


Securitisation –
keeping it simple?

Cadwalader's London Capital Markets published a Client Memo on 1 October 2015 which discusses the proposed European Securitisation Regulation and amendments to the Capital Requirements Regulation (including proposed amendments to the European risk retention rules). Please click here to view the full Client Memo.

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