Public Tapped to Fund Debt-for-Equity Swaps
Chinese regulators have given banks the go-ahead to tap the public for funds that will ultimately be used to finance debt-for-equity swaps for over-leveraged enterprises.
The explicit approval was given in a new set of guidelines for debt-for-equity swaps, one of the solutions that regulators have been pushing to deal with the country’s immense corporate debt problem. So far, however, it is a solution that has been slow to get off the ground.
Under the new guidelines, banks are encouraged to raise money from customers, including individuals and institutional investors, by selling them wealth-management products whose proceeds can be invested in private equity funds that finance debt-for-equity swaps, according to the announcement published late Thursday on the National Development and Reform Commission’s (NDRC) website.
The guidelines also encourage investors participating in debt-for-equity swap projects to set up private equity funds to raise and invest money in enterprises in need of debt relief, according to the announcement, which was released jointly by the NDRC, the central bank and several other industry and financial regulators.
Industry observers see the regulatory move as a response to criticism that the debt-for-equity swap program has been slow to ramp up.
So far, multiple borrowers across the country have reached debt-for-equity swap agreements with their lenders. The agreements involve more than 1 trillion yuan ($156.5 billion) in debt, a source close to regulators told Caixin. However, only 30 million yuan in projects has gotten off the ground.
In September 2016, the central government launched the debt-for-equity swap program, which allowed enterprises’ bank loans to be converted into equity. The program aims to help banks deal with bad loans on their books, while taking some of debt burden off financially struggling companies, particularly those in state-dominated industries suffering from excess capacity, such as coal and steel.
As China's laws generally prohibit commercial banks from directly holding equity in nonfinancial institutions, banks are encouraged to transfer their loans at negotiated prices to other investors, including insurers’ asset management subsidiaries, state-owned investment companies, the investment arms of banks, and asset management companies under the central and local governments. These investors receive government support to participate in debt-equity swap projects.
China’s top regulators have been pushing debt-for-equity swaps to reduce high corporate leverage, often seen as the root of weakness in China’s financial system.
As of the end of 2016, China’s overall debt was equivalent to 247% of gross domestic product (GDP), with corporate debt amounting to 165% of GDP —figures high enough to draw concern from international organizations such as the International Monetary Fund.
Contact reporter Lin Jinbing (firstname.lastname@example.org)
Jul 03 18:31
Jul 03 16:35
Jul 03 12:42
Jul 02 19:38
Jul 02 16:33
Jul 02 14:50
Jul 02 13:28
Jul 02 12:04
Jul 01 19:08
Jul 01 17:47
Jul 01 16:22
Jul 01 15:59
Jul 01 12:58
Jun 30 18:14
Jun 30 17:59
- 1Cover Story: The Mystery of $2 Billion of Loans Backed by Fake Gold
- 2Dialogue with Jared Diamond: Global Pandemic and Crisis Management
- 3EU May Open Borders to Chinese Travelers if Beijing Reciprocates
- 4Exclusive: China Plans to Grant Securities Licenses to Commercial Banks
- 5Trending in China: Chinese Netizens Tell Indian Prime Minister Modi To ‘Shut The Door On The Way Out’ As He Quits Weibo
- 1Power To The People: Pintec Serves A Booming Consumer Class
- 2Largest hotel group in Europe accepts UnionPay
- 3UnionPay mobile QuickPass debuts in Hong Kong
- 4UnionPay International launches premium catering privilege U Dining Collection
- 5UnionPay International’s U Plan has covered over 1600 stores overseas