Release of SOE Debt for Equity Scheme Looms
Yicai Global
/SOURCE : Yicai
Release of SOE Debt for Equity Scheme Looms

(Yicai Global) Aug. 29 -- China's economy has entered an adjustment period with a slowdown in growth and most state-owned enterprises (SOEs) facing a corresponding debt crisis. Their plight may however be eased through a debt for equity scheme promoted by the National Development and Reform Commission. An initiative of this kind may issue in the second half of Sept., and will comply with the principles of marketization and legalization. Large national commercial banks look set to be the first batch of banks to undergo this pilot scheme.

In the 1990s, in order to support SOE reform and reduce non-performing assets for four national commercial banks -- Industrial and Commercial Bank of China, Agricultural Bank, Bank of China and China Construction Bank -- China established four asset management companies (Cinda Asset Management Corporation, Huarong Asset Management Corporation, Great Wall Asset Management Corporation and China Orient Asset Management Corporation) to receive non-performing assets for SOEs and four nationalized banks, implementing debt for equity with about USD 60 billion (CNY400 billion) in non-performing assets. This measure significantly lowered the debt ratio of enterprises, and their interest burdens also dropped substantially, with enterprises with general operations going from deficits to profits directly.

Analysts indicate that, in contrast to the policy-based debt to equity swaps of the 1990s, creditors in this round are likely to set prices via negotiation and independent consultation per the principle of marketization.

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