SHANGHAI Dec 24 China has drawn up new
guidelines allowing institutions to issue special bonds to
finance debt-to-equity swaps, the state planning agency's
official news website said.
Chinadevelopment.com.cn, run by the National Development and
Reform Commission (NDRC), said investment vehicles and asset
management firms would be permitted to issue bonds at a value of
no more than 70 percent of the value of the debt-to-equity
contract, adding that 40 percent of the value of the bonds could
be used to replenish a company's working capital.
China has been promoting debt-to-equity swaps as a way of
curbing dangerous levels of leverage among state-owned firms,
with the country's total corporate debt burden at $18 trillion,
equivalent to about 169 percent of the country's gross domestic
product, according to the most recent figures from the Bank for
The NDRC expects the plan to help cut total company
liabilities by 10-20 percent.
The first deal was agreed in September when stricken
state-owned metals trader Sinosteel was allowed to swap 27
billion yuan of its debt into equity convertible bonds.
But critics have expressed concern that the policy could
help local governments prop up unprofitable but politically
influential "zombie" enterprises.
Chinadevelopment.com.cn said the guidelines would give the
market a "decisive role" in the process and would aim to prevent
"moral hazard", as well as ensure that the government itself did
not bear the burden of any losses.
(Reporting by David Stanway; Editing by Nick Macfie)