Keepwell Deeds: A Workable Solution To PRC's Foreign Exchange Control? | Hong Kong

Keepwell deeds have emerged as a popular tool for credit enhancement in recent years, particularly in financing arrangements where an offshore debtor is tied to a PRC parent company.

This keepwell structure often serves as a workaround for the stringent regulations in PRC governing onshore guarantees for offshore debts (内保外贷). Despite their growing usage, questions regarding the validity and enforceability of these agreements have lingered. In this article, we will explore the nature of keepwell deeds, the reasons for their rising preference, their legal standing, and the uncertainties that continue to surround them.

What is a Keepwell Deed?

A keepwell deed is a financial tool that is often used by a company to enhance the creditworthiness of its subsidiary when seeking loans or issuing bonds. This mechanism is particularly favoured by PRC companies to provide credit support to their offshore subsidiaries, providing creditors with the assurance that the