China to ramp up measures for corporate deleveraging

2018-02-08 01:21:13 GMT2018-02-08 09:21:13(Beijing Time) Xinhua English

BEIJING, Feb. 7 (Xinhua) -- China will continue with thedeleveraging of enterprises by promoting market-baseddebt-to-equity swaps to rein in debt risks, according to a decisionat a State Council executive meeting chaired by Premier Li Keqiangon Wednesday.

The deleveraging of State-owned enterprises will be the highpriority, supported with further measures like the SOE reform,cutting excess capacity and lowering cost, according to thedecision.

The channels for private capital to be turned into equityinvestment will be expanded, and equity investment institutionswill be encouraged to take part in the market-drivendebt-for-equity programs.

"The debt-to-equity swap deserves much credit for reversing thefast rise of debt and bringing about a decline in the overallleverage ratio. It has been a market-driven, rules-based process,which has worked well so far," Li said.

Figures from the National Bureau of Statistics show that by theend of 2017, the debt-to-asset ratio of industrial enterprises withannual business revenues at or above 20 million yuan has dropped0.6 percentage point year on year to 55.5 percent. The figure forState-controlled enterprises for the same period was down by 0.9percentage point to 60.4 percent.

The National Development and Reform Commission announced lastAugust that the agencies enforcing debt-to-equity swaps havereached agreements according to market principles with 70-plushighly leveraged companies in the steel, coal, chemical andequipment manufacturing industries, with a total contractual valueof more than 1 trillion yuan.

According to a decision at the meeting, the SOEs will berequired to improve corporate governance and introduce a debtcontrol mechanism. Their efforts to replenish capital includingthrough additional share offering and introducing strategicinvestors will be supported. The mixed ownership reform will bepushed forward.

Measures to raise stable, low-cost equity investment funds forthe medium and long run will be brought forward, as well as thoseto set up private equity funds targeting debt-to-equity swaps. Thecapital market will be given a greater role in the merging,restructuring and optimizing of capital stock. A plan to conductequity-swap transactions through the multilevel capital market willalso be worked out.

The agencies that enforce the debt-to-equity swaps will bereinforced. Financial institutions will be guided to conduct theswaps through existing agencies and state-capital investmentcompanies in a market-based manner. Eligible banks and insuranceagencies will be supported in setting up new enforcement bodies.And asset management companies will be encouraged to strengthentheir capital positions.

The debt restructuring policies for enterprises will beimproved, and a bankruptcy mechanism for affiliated enterpriseswill be established. The cost of zombie companies going bankruptwill be borne through a cost-sharing mechanism between thegovernment, enterprises and banks.

"Related government departments should fulfill theirresponsibilities and make concerted efforts to create an enablingenvironment and see the debt-to-equity swap agreements through,"the premier said.

According to a decision at the meeting, targeted guidelines willbe issued to improve the quality of debt-to-equity programs.Debt-to-equity swap agreements that were already signed will beurged to be put into practice at an earlier date to reduce thecorporate debt ratio.

"We must always act cautiously and push forward implementationby category to make sure that these swap programs truly deliver,"Li said. Enditem