Chinese companies began using Keepwell`s structure about seven years ago to allay skittish foreign investors` concerns about the solvency of a bond issuer. They became increasingly popular as Beijing policymakers adopted a more market-oriented business approach and increased corporate bond defaults. In 2017, the national foreign exchange authority, a market watchdog, adopted new rules on guarantees that allowed domestic companies to return money raised through offshore bonds. However, according to China International Capital Corporation, an investment bank, some Chinese issuers have maintained Keepwell`s structure because revenue usage rules are more flexible and regulatory approvals are even less necessary. A Keepwell agreement is an agreement between a parent company and one of its junior companies. The parent company promises that it will make all financing requirements available to the subsidiary for a specified period of time. A Keepwell agreement can be characterized as a comfort letterComfort LetterA comfort letter is an insurance document from a parent company to insure a subsidiary of its willingness to provide financial support. Bankruptcy and debt restructuring in China are a bleak process, especially for international investors. The so-called “Keepwell” rules are one way that bondholders try to protect themselves in the event of a default. The problem is that the clause essentially boils down to a “gentlemen`s agreement” and is only considered in court. Keepwell`s agreements give confidence not only to lenders, but also to shareholders, bondholders and suppliers of a subsidiary. The Keepwell bond issue remains strong despite the uncertainties.

A Keepwell agreement determines how long the parent company will guarantee the financing of the subsidiary. This type of contract helps the subsidiary with the lenders. In other words, lenders are more likely to lend to the subsidiary if it has a Keepwell agreement. Subsequently, the chances of success in China are much greater thanks to the Keepwell agreement. We can either write the term as two or three words, that is, either hold the agreement, or agree. The subsidiary may develop a De Keepwell agreement as a form of credit enhancement for a loan. The parent company is committed to keeping the subsidiary in good financial health. In this case, the subsidiary is the issuer of the loan. A Keepwell agreement is a contract between a parent company and its subsidiary to maintain solvency and financial assistance for the duration of the agreement.

Keepwell chords are also called comfort letters. In order to keep production on track and keep the loan interest rate as low as possible, Computer Parts Inc. may enter into a Keepwell agreement with its parent company, Laptop International, to secure its financial solvency for the duration of the loan. When a subsidiary is having difficulty obtaining financing to continue its operations, a Keepwell agreement is useful. The parent company will support it financially and help it maintain solvency during the period defined in the agreement. When an entity enters into a De Keepwell agreement, the solvency of corporate bonds and debt securitiesThe debt instrument is an investment income asset that legally obliges the debtor to grant interest and repayments to the lender.