China’s debt-to-equity swaps market hitting RMB 1 trln in value
Jun 06, 2019 (China Knowledge) - According to the National Development and Reform Commission (NDRC), debt-to-equity swap programs have reached RMB 909.5 bln in value. This debt financing tool has shown to be a popular tool in the capital market this year. A record of RMB 2.3 tln deals were signed as of the end of April.
The programs covered across 26 industries including primary industries like steel, non-ferrous metals, coal, transportation, and power. The number of enterprises that have implemented debt-to-equity swaps has reached 106.
Debt-to-equity appears to be one of the Chinese government’s latest toolset in driving the capital market.
According to Lian Weilang, Vice-chair of the NDRC, the Chinese government continues to strive the use of market-based debt-equity swaps to drive reform, mitigate risk and reduce leverage. The government is pushing to strengthen the capital strength of high-quality enterprises and spurring their competitive capability.
“The current stage of equity swaps is such that target companies, creditor’s rights, prices and conditions, fund raising, equity management, withdrawal and other matters are all independently negotiated and determined by market players,” he said.
Lian emphasized that the government’s role is to create an appropriate policy environment for market participants. In the near future, the government will encourage private enterprises to participate more actively in undertaking debt-equity swap.
In the next stage of reform, the NDRC aims to increase the debt-equity pie to private enterprises. More specifically, these enterprises can participate as either the subject of debt-equity swaps themselves or to participates in debt-equity swaps for state-owned enterprises (SOEs).
Currently, there are 24 private enterprises who have implemented their own debt-to-equity swaps to reduce short-term repayment pressure. They include Nanjing Steel, Shagang Group, Delong Steel and Inner Mongolia Yuan Xing.
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