China’s Debt-to-Equity Swap Agreements Reach 2.3 Trillion Yuan as NDRC Expands Private Market’s Role


Beijing is touting the use of market-based debt-for-equity swaps to dial down levels of leverage in the Chinese economy.

Data from the National Development and Reform Commission (NDRC) indicates that as of the end of April the value of debt-to-equity swap agreements in China had reached 2.3 trillion yuan, with 909.5 billion yuan in deals taking place.

106 enterprises and 367 projects have seen the implementation of debt-for-equity swaps, covering a total of 26 sectors including steel, non-ferrous metals, coal, power and transit.

Lian Weiliang (连维良), vice-chair of NDRC, said that the current round of market-based debt-for-equity swaps is distinct from previous policy-driven rounds, with market actors independently negotiating and determining target companies, swap prices and conditions, fund-raising amounts, as well as equity management and withdrawal.

According to Lian the government is no longer drawing up lists or playing a “match-making role,” and its function is instead to provide a sound policy environment for market actors.

The next step for Chinese regulators will be to “resolve difficulties and clear out blockages,” while driving the growth of market-based debt-for-equity swaps.

“[We] will further improve market-based, rule-of-law based debt-for-equity swap rational pricing mechanisms, and fully employ the vanguard role of financial asset investment companies.”

Lian also highlighted the establishment of performance assessment and remuneration management systems by financial asset investment companies, and resolution of the problems of higher risk weightings and capital percentages when it comes to financial asset investment companies holding debt-for-equity swap equity.

Guo Xiaobei (郭晓蓓), researcher with China Minsheng Bank, said to state-owned media that debt-for-equity stops were a key measure for China’s structural deleveraging campaign.

“Debt-for-equity swaps were launched over two years ago with the release of the ‘Opinions Concerning Actively and Appropriately Reducing Corporate Leverage Ratios’ (关于积极稳妥降低企业杠杆率的意见 by the State Council in October 2016.

“They have played a positive role in reducing the debt-ratios of state-owned enterprises, driving state-owned enterprise reform, and supporting the growth of the real economy.”