China’s banking authority has just issued a new directive giving the green light for financial asset investment companies to undertake asset management operations involving debt-to-equity conversion.
On 6 May the China Banking and Insurance Regulatory Commission (CBIRC) issued the “Notice Concerning Matters in Relation to Financial Asset Investment Companies Undertaking Asset Management Operations” (关于金融资产投资公司开展资产管理业务有关事项的通知).
The Notice stipulates that financial asset investment companies will be allowed to create and manage debt-to-equity investment plans as entrusted by investors, as well as invest and manage the financial assets entrusted by investors in accordance with the stipulations of debt-to-equity investment plan contracts.
The Notice requires that any debt-to-equity investment plans be primarily invested in market-based debt-equity assets, including creditor’s rights, debt-to-equity special bonds, common stock and preferred stock, for the goal of achieving the market-based conversion of debt into equity.
In principle at least 60% of the net assets of debt-to-equity investment plans must be invested in debt-to-equity assets.
Dong Ximiao (董希淼), chief researcher with XWBank, said to National Business Daily that the Notice will help to standardise the undertaking of asset management operations by financial asset investment companies, as well as drive the implementation of market-based debt-equity swaps.
For financial asset investment companies, the Notice will give them the means to raise greater amounts of funds via the issuance of asset management plans, providing them with a more diverse range of funding sources.
Financial asset investment companies will be allowed to provide debt-to-equity investment plans via private channels to qualified investors, the definition of which varies depending on whether such investors are natural persons, legal persons or other institutions.
For natural persons the requirements are at least four years of investment experience and satisfaction of one of the following requirements:
- Net household assets of no less than 5 million yuan,
- Household financial assets of no less than 8 million yuan,
- Personal income averaging no less than 600,000 yuan per annum for the past three years.
For legal person entities the requirement is net assets of no less than 20 million for the end of the past financial year.
The Notice also stipulates that qualified investors can invest no less than 3 million yuan in individual debt-to-equity investment plans.