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Regulation of Investments of China CDM Fund

Chapter 1 General Rules

Article 1 In order to standardize the investments of China CDM Fund (the “CDM Fund” or “Fund”), this Regulation of Investments of China CDM Fund is formulated on the basis of Regulation of China CDM Fund, to ensure the safety of the funds and preserve and increase the value of the funds. 

Article 2 The investments of the Fund shall be conducted in accordance with the applicable national laws and regulations, industrial policies and development plans of the industry, contribute to addressing climate change, and provide sustainable financial support to China’s efforts to address climate change. 

Article 3 The Board of China CDM Fund (the “Board of CDM Fund” or “Board”) will be responsible for reviewing the annual budgets of CDM Fund (the “budget”) and major investments, and supervising and directing China CDM Fund Management Centre (the “Management Centre”) in conducting investment activities. 

Article 4 The Management Centre will be responsible for the daily administration of the Fund, and also for conducting investment activities, as well as submitting the annual plans of fund use, major investment applications and investment reports to the Board through NDRC.

Chapter 2 Methods and Investees

Article 5 China CDM Fund’s investment mainly takes forms of equity investment, concessional loan, and financial guarantee and 

other means.

Article 6 The “equity investment” in this Regulation means the acts of the Fund to put in, increase and accept as transferee equity capital, so as to support activities contributing to addressing climate change in accordance with the law.

Article 7 The “concessional loan” in this Regulation means the acts of the Fund entrusting the domestic commercial banks, and non-bank financial institutions or financial systems qualified to give loans to conduct debt investment contributing to addressing climate change in accordance with the law. 

Article 8 The “financial guarantee” in this Regulation means the acts of the Fund as a guarantor providing guarantee for the pincipal and interest for financing activities contributing to addressing climate change in accordance with the law. 

Article 9 The Fund shall not engage in investments in stocks, stock funds, real estate or futures and other financial derivatives.

Article 10 An eligible investee shall meet the following standards: 

(1)Chinese or Chinese holding enterprise in China;

(2)engaging in the business related to addressing climate change;

(3)sound organization structure and management system; 

(4)good operating conditions, and with strong market competitive power;

(5)in a mature industry or in an industry of great development potential;

(6)experienced in the implementation and management of relevant projects;

(7)good credit standing, without serious violation of laws and regulations;

(8)able to provide necessary safety guarantee for the investment of the Fund. 

Article 11 In order to ensure the safety of the funds, the term of any investment shall not be more than 3 years in principle. For projects supported by equity investment, financial guarantee and other relevant means, their term may be prolonged as appropriate. 

Article 12 The Fund shall not be the controlling shareholder of the investee in the case of equity investment. Generally, the shares held by the Fund shall not exceed 25% of the total equity of the investee. If the Fund desires to increase investment which will cause its shareholding ratio to surpass 25%, the Fund shall obtain the approval of the Board of CDM Fund first. 

For the exit of equity, the exit routes and prices shall be determined by NDRC, Ministry of Finance or the Management Centre based on the principles of openness, fairness and marketization in accordance with the examination and approval authority and procedures for major and non-major investments set out in Regulation of China CDM Fund.

Article 13 For enterprises significantly contributing to addressing climate change, considering the regions where the projects are implemented and the projects, the Fund may provide the concessional loans at the interest rates lower than the then current market lending rates within the preferential margin set out in the budget.

Chapter 3 Organization and Implementation

Article 14 The Management Centre shall conduct the investments in accordance with the investment percentages and guarantee amounts prescribed to different categories in the budget. 

Article 15 The budget shall be prepared by the Mangement Centre, reveiwed by the Board of CDM Fund, and submitted to Ministry of Finance and NDRC for approval. 

Article 16 The organization and implementation of investments include the project selection and initiation, due diligence, risk assessment, investment review, project decision-making and execution of legal documents and so on. 

Article 17 The Management Centre shall expand and diversify project sources to have rich project reserves, and select and initiate the projects in accordance with the budget and Article 10 hereof. 

The member units of the Board of CDM Fund can provide suggestions about projects. 

Article 18 The Management Centre shall conduct the due diligence in the respects of the quality and policy compliance of the projects, the general information and operation capacity of the project owner, the uses and safety of the investments and so on, with combined qualitative and quantitative methods, on the basis of comprehensively considering the risk and return of the investments, so as to provide overall, true and accurate information for the project selection and risk monitoring and control. 

Article 19 The Management Centre will conduct risk identification and evaluation of the investments from the perspectives of finance, accounting, law and industry in accordance with the risk management system, with prudent risk assessment standards, and submit the risk assessment report the Risk Management Committee of the Management Centre (the “Risk Management Committee”) for deliberation. 

The Risk Management Committee will be composed of external financial, accounting, legal and industrial risk management experts, and staff responsible for the fund risk management and investment activities of the Management Centre. 

The result of the deliberation of the Risk Management Committee is important for the investment project decision. 

Article 20 The Investment Review Committee of the Management Centre (the “Investment Review Committee”) shall independently conduct the technical and economic evaluation of the investments on the basis of the budget, project feasibility study report, project implementation plan and due diligence report. 

The result of the deliberation of the Investment Review Committee is important for the investment project decision. 
    Article 21 For any investment of RMB 70 million or higher, the Management Centre shall submit the project proposal, feasibility study report, due diligence report and implementation plan as well as the results of deliberation of the Risk Management Committee and Investment Review Committee to the Board of CDM Fund for examination and approval. 

If there is any doubt about any such documents, the Board can hire independent intermediary agencies or experts to make evaluation, conduct investigation and provide opinions on relevant issues. The expenses for hiring such agencies and experts shall be disbursed from the investment development expenses. Such agencies and experts may prepare reports based on their investigation or evaluation results to submit to the Board as an important basis for the project decision, if necessary. 

The investment projects approved by the Board shall be submitted to NDRC and Ministry of Finance for approval. 

Article 22 For the investments less than RMB 70 million, the Management Centre shall go through the examination and approval in accordance with relevant procedures, and file the project proposal, feasibility study report, due diligence report and implementation plan as well as the results of deliberation of the Risk Management Committee and Investment Review Committee and the project approval documents with NDRC and Ministry of Finance for the record before signing the contract and no later than 15 days after approval. 

Article 23 The Management Centre shall strictly follow the project approvals to sign the contract with the interested party of the project and implement the investment project.

    Chapter 4 Management and Supervision

Article 24 The Management Centre shall regulate the investment activities and strengthen project management and risk control under the guidance and supervision of the Board of CDM Fund in accordance with applicable national policies, laws and regulations, and relevant provisions. 

Article 25 The Management Centre shall establish a sound project monitoring system to realize efficient operation of the investment funds at an acceptable level of risk as well as the preservation and increase of the value of the funds. 

 (1) make an adequate management system of investments; make suitable investment procedures and work requirements for different categories of investment; regulate the accounting and financial control of investment activities in accordance with Regulation of Financial Administration of China CDM Fund; 

 (2) set up specialized risk internal control organizations, to perform the duties of risk indentification, evaluation, monitoring and control independently, so as to ensure the risk management is objective, effective and impartial.

 (3) improve the post accountability system, enhance the awareness of project management and risk control, and clearly stipulate the work division of departments and post responsibilities. The double-posts management pattern is adopted for the investment activities, which means two officials are assigned to manage an investment together, each undertaking his respective responsibilities, to ensure the investment activity proceeds in an orderly fashion. 

 (4) design a scientific risk evaluation model, to conduct overall evaluation of the market risk, credit exposure, liquidity risk, operational risk, moral hazard and legal risk and so on of the investments of the Fund, so as to guarantee the safety of the investment activities as far as possible; 

 (5) adopt sound capital operation models; improve the capital allocation plans for investments in accordance with the requirement of matching the assets with liabilities; appropriately arrange the term of use of the funds and investment schedule; monitor the whole process of capital operation. 

 (6) establish effective project monitoring system; evaluate the project compliance, capital risk, managing capacity of the project owner and the performance of the project regulary or from time to time. When necessary, the Management Centre can hire intermediary agencies or experts to conduct independent evaluation of the financial control, legal affairs, internal control, technology, risks and so on of the project. 

 (7) build a sound emergency response mechanism, and improve the ability to cope with unexpected major events. 

Article 26 In the event of any breach of the contract or violation of this Regulation by the project owner, the Management Centre will demand relevant corrections within a definite time, and give a warning by postponing fund appropriation and taking other actions; in serious cases, the Management Centre will terminate the project and recover the investment that has been made. The Management Centre will initiate legal proceedings to protect the lawful rights and interests of the Fund. 

Chapter 5 Report

Article 27 The Management Fund shall report the major issues and unexpected events in the investment activities to the Board of CDM Fund in a timely manner. 

Article 28 The Management Centre shall report the investments of the previous year to the Board of CDM Fund by the end of April. 

Article 29 The Board may require the Management Centre to report the investment activities according to actual situation. 

Chapter 6 Supplementary Provision

Article 30 This Regulation shall go into effect on the date of its promulgation.

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