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Debt-for-Equity Swaps Easier Said Than Done

China’s debt-for-equity program has faced skepticism from some who say that the additional cash made available for investment in struggling firms will go to “zombie companies.” Photo: VCG
China’s debt-for-equity program has faced skepticism from some who say that the additional cash made available for investment in struggling firms will go to “zombie companies.” Photo: VCG

China’s latest round of debt-for-equity swaps aimed at bringing down corporate leverage has been moving more slowly than expected, primarily due to fundraising difficulties and uncertainties about returns on the investments.

As of the end of June, a total of 109 companies had signed debt-for-equity swaps with investors involving a total of 1.7 trillion yuan ($254 billion), but only around 20%, or 346.9 billion yuan, had been implemented, according to data (link in Chinese) released on Tuesday by the National Development and Reform Commission (NDRC), the country’s economic planning agency. 

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