Big Five Banks Sign on for Debt-Equity Swaps Worth Over One Trillion Yuan


China’s big five banks have signed on for debt-equity swap agreements worth over one trillion yuan (USD$149.87 billion), as regulators push for accelerated use of the instruments to deleverage the state-owned enterprise sector.

China’s National Development and Reform Commission recently flagged the accelerated use of debt-equity swaps to deleverage certain heavily indebted state-owned enterprises – a task referred to by President Xi Jinping as the “priority of priorities” at the National Financial Work Conference in mid-July.

Data from NDRC indicates that Chinese banks have already used debt-to-equity swaps to reduce the aggregate debt levels of over 70 state-owned enterprises in the steel, coal, chemicals and equipment manufacturing industries by as much as 1 trillion yuan (USD$149.2 billion).

At its recent mid-year work meeting the China Banking Regulatory Commission called for the active promotion of debt-equity swaps to effectively support the removal of excess industrial capacity and deleveraging.

Four of the big five banks – the Agricultural Bank of China, Bank of China, China Construction Bank and the Industrial and Commercial Bank of China have already obtained approval for the establishment of debt-equity swap vehicles, while the Bank of Communications is currently at the establishment phase.

In terms of scale, CCB it the first amongst the big five banks when it comes to debt-equity swap involvement, executing debt-equity swap framework agreements worth 544.2 billion yuan with a total of 41 enterprises as of the end of july.

ABC has signed debt-equity swap cooperative agreements worth up to 230 billion yuan with 15 agreements, while ICBC has revealed that it has executed agreements with over ten enterprises worth roughly 150 billion yuan in total.

Bank of Communications has executed agreements for debt-equity swaps worth roughly 100 billion yuan, with companies including Yangquan Coal industry, Guangxi Traffic Investment Group and China National Building Material.

When the totals for ABC, CCB, BOC and ICBC are added together the combined scale of their debt-equity swap agreements is in excess of 1 trillion yuan.

Data indicates that state-owned enterprises account for around 98% of debt-equity swap agreement value that banks have executed with over 50 companies, with province-level SOE’s the most heavily represented followed by central SOE’s.

Industries involved include coal, steel, transportation, building materials and non-ferrous metals, while 67.86% of enterprises involved in the agreements have total assets worth in excess of 100 billion yuan.