The Asia Global Payment Summit. Bali, Indonesia. 10-11 October 2019

China Allows Banks to Support Debt Equity Swaps Via Private Equity Funds

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Beijing has given the green-light to banks establishing private equity funds to support the debt-equity swap schemes designed bring succour to heavily indebted state-owned enterprises.

China’s National Development and Reform Commission announced via its website on Friday that qualified list and non-listed companies will be permitted to issue common shares, preference shares and convertible bonds to the subsidiaries of Chinese banks for the purpose of financing debt-for-equity swaps.

According to NDRC the changes mean that private equity funds will be allowed to raise money via the wealth management products of qualified banks for the swap schemes.

The move comes just as Beijing accelerates the use of debt-for-equity swaps to deleverage the country’s heavily indebted SOE sector, by increasing the involvement of banks.

The use of swaps is primarily directed at China’s languishing oversupply industries, such as steel and coal, with the creditors of Chongqing Iron & Steel Co. voting to accept a swap scheme in November for the restructuring of nearly 40 billion yuan in debt.

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