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Foreign Government Loan

Overview

The Foreign Government Loan is a kind of sovereign debt granted by the government of one country to that of another. Such loans feature low interest rates, long term, and various additional conditions. The Foreign Government Loan is mainly a hybrid loan, i.e. the combination of a favorable loan with low interest rates or a grant together with export credits granted by the foreign government.

Projects involving Foreign Government Loan are classified into three categories based on the responsibility for repayment as regulated by the Ministry of Finance (MOF):

(a) Projects in which the financial department of the provincial government acts as the borrower for repayment of the loans while the bank acts as the financial agent;

(b) Projects in which the project owner acts as the borrower while the bank makes on-lending and the financial department of the provincial government acts as the guarantor; and

(c) Projects in which the project owner acts as the borrower responsible for repayment while the on-lending bank acts as the final obligor and the financial department of the provincial government does not guarantee the repayment.  

Features

The Foreign Government Loan is usually a long-term loan with low interest rates. Favorable loans granted by a foreign government usually have an interest rate not exceeding 3% while some governments provide interest free loans. The loan term is from 10 to 40 years depending on the country involved.

However, the use of the Foreign Government Loan is usually subject to certain restrictions, such as compulsory procurement of equipment from the lending country, approval by the governments of both lending and borrowing countrieand the percentage of the third country equipment and technology not to exceed 10%-30% of the contract value. Nevertheless, some countries and multi-country institutions, such as Kuwait, Germany, and the Nordic Investment Bank, allow international bidding in procurement without country restrictions.

Target Customers

1. Projects demanding equipment from lending countries.

2. The majority of the projects eligible for the Foreign Government Loan are in connection with environmental protection, infrastructure construction, health care, and education.

3. Projects requiring immediate commencement are not eligible since obtaining approvals of such loans usually takes a longer time.

Procedures

1. The customer should apply for project initiation with the local offices of the National Development and Reform Commission (NDRC) and MOF, and at the same time, designate ABC as the on-lending bank.

2. After the project is approved by the local offices of NDRC and MOF, ABC will review and assess the project based on the notification of MOF.

3. ABC signs the borrowing contract of on-lending for the foreign government loan with the customer. 

4. ABC signs the borrowing agreement with the relevant foreign bank or foreign government in order to obtain funds for lending.

5. The project is placed into implementation.

Tips

1. In accordance with the applicable regulations of the MOF, ABC will charge a 0.2% to 0.3% on-lending fee in the case of Category (a) and Category (b) Projects, or no more than 2% of on-lending spread in the case of Category (c) Projects based on the project value and risk profile.

2. ABC has signed master loan agreements with many institutions offering the Foreign Government Loan, which simplifies the procedures for single projects.

3. ABC is eligible for on-lending of government loans granted by most of the countries in the world. ABC is also able to offer the customer with all-around services such as wealth management products for mitigation of foreign exchange risks as well as supporting funds.
Note: Please contact your local branch for detailed information about the service.

Customer Service Center : 95599

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