Caixin
Jul 24, 2020 08:11 PM
FINANCE

China Launches 100 Billion Yuan Bond Bailout Fund for State Firms

The fund aims to strengthen the capital chains of the SOEs and curb systematic financial risks in the country.
The fund aims to strengthen the capital chains of the SOEs and curb systematic financial risks in the country.

China has set up a bailout fund with a fundraising goal of 100 billion yuan ($14.3 billion) to deal with potential bond defaults by central government-controlled state-owned enterprises (SOEs).

The new fund, established by China Reform Holdings Corp. Ltd. and 31 other centrally controlled SOEs, has so far raised 10 billion yuan from these enterprises, China’s top SOE watchdog said in a statement Thursday. The fund was designed to supply emergency funding to centrally controlled SOEs short on cash so they can avoid defaults.

China Reform, a state-owned investment company supervised by the State-owned Assets Supervision and Administration Commission (SASAC) under the central government, will manage the fund, company Chairman Zhou Yubo was quoted by state-run newspaper China Securities Journal as saying.

Ming Ming, an analyst at Citic Securities Co. Ltd., said (link in Chinese) the fund will help further improve the creditworthiness of centrally controlled SOEs, which have long helped keep China’s economy stable.

Currently, there are 5,090 bonds issued by centrally controlled SOEs with the highest issuer credit rating of “AAA,” Ming said. These securities account for 75.8% of all bonds issued by the SOEs, which indicates the majority of these companies pose a low credit risk.

The fund aims to strengthen the capital chains of the SOEs and curb systematic financial risks in the country, said Yuan Ye, a deputy head of SASAC, which oversees about 100 centrally owned SOEs.

The ongoing Covid-19 pandemic has had an adverse impact on centrally controlled SOEs supervised by SASAC. In the first quarter this year, their total net profits plunged 58.8% year-on-year. Twenty-six of the enterprises reported net losses. In the first half of the year, the profit decline narrowed to 37.7%, as the domestic economy recovered from the fallout of the pandemic.

Founded in December 2010, China Reform had more than 420 billion yuan in assets at the end of 2019.

Contact reporter Tang Ziyi (ziyitang@caixin.com) and editor Michael Bellart (michaelbellart@caixin.com)

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