Debt-for-Equity Swaps Near 1 Trillion Yuan, Beijing Commits to Raising Private Enterprise Share

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Official data indicates that the value of debt-for-equity swaps implemented in China is fast approaching one trillion yuan.

“As of the end of April the value of China’s debt-for-equity swap agreements was 2.3 trillion, with 909.5 billion yuan implemented,” said Lian Weiliang (连维良), vice-chair of the National Development and Reform Commission (NDRC) at a press conference held on 5 June.

Lian said that 106 enterprises have implemented debt-equity swaps, with a total of 367 projects and 26 industries covered, including steel, non-ferrous metals, coal, power and transportation.

According to Lian the Chinese government will continue to drive the use of lawful, market-based debt-equity swaps to drive reform, prevent risk and reduce leverage, pointing to their ability to strengthen the capital strength of high-quality enterprises as well as their competitive capability.

“For the current round of equity swaps, target companies, creditor’s rights, prices and conditions, fund raising, equity management, withdrawal and other matters are all independently negotiated and determined by market actors,” he said.

“The government is not pulling out a list to play matchmaker – the government’s role is to create an appropriate policy environment for market actors.

“In future we will support implementing institutions in choosing private enterprises that better satisfy the conditions for undertaking debt-equity swaps.”

According to Wei the next step will be to increase the debt-equity share of private enterprises, who can participate as either the subject of debt-equity swaps themselves, or as participates in debt-equity swaps for state-owned enterprises (SOE’s).

Wei revealed that there are already 24 private enterprises who have implemented their own debt-equity swaps to reduce short-term repayment pressure, including Inner Mongolia Yuan Xing, Nanjing Steel, Shagang Group and Delong Steel.

Wang Hailin (王海琳), an official from the State-owned Assets Supervision and Administration Commission (SASAC), said that as of the end of the first quarter the central SOE debt-asset ratio was 65.7%, for a YoY decline of 0.2 percentage points.

A total of 56 central SOE’s had seen declines in their debt-asset ratios, with especially marked falls across heavily indebted, overcapacity sectors such as smelting, fossil fuel power generation and construction.

As of the end of 2018 China’s total leverage ratio was 249.4%, for a decline of 1.5 percentage points as of the end of 2017, while the average debt-asset ratio for SOE’s was 64.7%, for a decline of one percentage point compared to the end of 2017.

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