Market to Play a Decisive Role in China’s Corporate Deleveraging: NDRC

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A senior official from the National Development and Reform Commission (NDRC) says that  the market must play a “decisive role” in ongoing efforts to deleverage the Chinese economy via measures such as debt-for-equity swaps.

The People’s Daily reports that China’s upcoming deleveraging work schedule has already been confirmed, with  the  “full use of market mechanisms ” set to be the focal point for future policy efforts.

The remainder of 2018 will see the accelerated issuance of complementary deleveraging policies, which will further strengthen regulatory support for capital markets and the full use of capital markets during the deleveraging process.

These will mainly cover a “three mission” policy system encompassing:

i) Improvements to debt-equity swap asset transaction mechanisms;

ii) Strengthening of debt-equity swap shareholder rights protections;

iii) Improvements to the disposal of zombie enterprise debts.

Chen Hongwan (陈洪宛), head of the NDRC finance department, said that markets would play a decisive role in resource allocation during the process of advancing deleveraging, and that measures such as market-based debt-for-equity swaps will be used to deleverage and reduce the debt burden of “high-quality” enterprises that possess strong growth prospects.

“Relevant market entities will use market mechanisms to select equity swap target enterprises, achieving the marketised transfer of creditor’s rights, the marketised setting of prices, the marketised raising of funds and the marketised withdrawal from equity ownership.”

Chen said that the central government had already undertaken further clarification of relevant polices covering ten areas, including a comprehensive debt-equity combination plan and the issuance of equity to make debt repayments.

Analysts say the use of market-based methods such as bankruptcy proceedings to “clear out” certain under performing enterprises will lead to more rapid reductions in bad debts as well as optimise the efficiency of resource allocation.

Last year Beijing indicated that debt-for-equity swaps would play a central role in the deleveraging of state-owned enterprises, which it referred to as the “priority of priorities.”

Related stories

Beijing’s New Deleveraging Schedule Highlights Debt Equity Swaps, Zombie Enterprises

China’s Banking Regulator Dials Down Risk Requirements for Debt-Equity Swaps

Debt-for-Equity Swaps Expected to Accelerate with New Policies in First Half 

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