Agricultural Bank Agrees Debt-Equity Swaps Worth 70 Billion Yuan

(Beijing) — Agricultural Bank of China Ltd. (ABC) has signed agreements with eight companies to swap their debt worth more than 70 billion yuan ($10.2 billion) to equity as the lender’s nonperforming loan ratio declined in 2016.

ABC, the country’s third-biggest listed lender by assets, is in discussion to undertake more than 20 debt-to-equity swap deals from the eight enterprises, bank President Zhao Huan said during a news conference Wednesday.

The lender plans to invest 10 billion yuan to create an asset management company to deal with debt-to-equity swaps and buy the bank’s bad assets, Zhao said. Regulators are currently reviewing the plan, he added.

ABC’s nonperforming loan ratio totaled 2.37% at the end of last year, 0.02 of a percentage point down from 2015, according to the lender’s annual earnings report.

ABC is one of the creditors of Hong Kong-listed China Huishan Dairy Holdings Co. Ltd., which has been mired in accusations of forged invoices and embezzlement. The company’s stock fell a record 85% in a single day last week, leading Huishan to hold an emergency meeting with its creditors, including ABC.

ABC’s branch in Liaoning province, where Huishan is based, and ABC International Holdings Ltd., lent the dairy producer 110 million yuan and HK$150 million ($19.3 million) respectively, said Li Zhicheng, the bank’s chief risk officer. The amount “is not large,” and the dairy producer’s shares had been pledged as collateral, Li added.

Huishan later denied the rumors about false invoices and embezzlement but admitted that the company’s treasurer had disappeared. Local government officials have launched efforts to rescue the company by setting up a creditor commission and calling upon creditors not to call in loans and not to file lawsuits — a move that aims to pave the way for the company to attract investors and “maintain social and financial stability.”

The lender reported a net profit of 184 billion yuan last year, up 1.8% from a year earlier. Net interest income, which makes up the largest proportion of the lender’s total income, declined for the first time to 398.1 billion yuan, a drop of 9.6% from 2015. Its assets increased by 10%, to 19.57 trillion yuan.

Contact reporter Chen Na (nachen@caixin.com)