China’s State-owned Assets Supervision and Administration Commission (SASAC) plans to list at least 70% of central state-owned enterprise (SOE) assets by the end of the decade, as part of efforts to reduce leverage in the corporate sector.
China Securities Journal reports that SASAC has set the target of reducing the average debt-asset ratio of central SOE’s by 2 percentage points prior to 2020, and sent a draft version of guidance opinions on leverage reduction to all affected companies.
Many central SOE’s have already formulated detailed deleveraging plans and set concrete targets, with debt-for-equity swaps and the expansion of equity financing lying at the core of their efforts.
SASAC has also indicated that it will “strive to achieve the listing of over 70% of central SOE assets by 2020.”
In order to control the leverage of central SOE’s, SASAC has formulated a series of sector-based debt-asset ratio warning thresholds, being 65% for industrial enterprises, 70% for non-industrial enterprises and 60% for science and tech companies.
SASAC has also raised the significance of industrial enterprise and non-industrial enterprise debt-asset ratio indices in the performance assessments of central SOE executives by 5 percentage points compared to before 2016.
Figures from securities brokerage Industrial Securities indicates that the average debt-asset ratios of industrial, non-industrial and science and tech central SOE’s were 54.00%, 73.11% and 49.78% respectively.
40 industrial central SOE’s had debt-asset ratios ahead of the warning threshold, as compared to 19 non-industrial companies and 1 science and tech concern.
The accelerated use of debt-for-equity swaps and equity financing will lie at the core of SOE deleveraging efforts, with Securities Journal reporting that there are currently 12 central SOE’s who have executed market-based debt-for-equity swap framework agreements worth around 380 billion yuan in total, while another 36 central SOE’s are already actively engaged in debt-for-equity swap schemes.