SHANGHAI Oct 12 China Construction Bank Corp
will establish a 24 billion yuan ($3.60 billion)
transformation and development fund with Wuhan Iron and Steel
Group Corp to help the steel firm reduce leverage, the bank said
on its website.
The funding programme, which the bank said was the first of
its kind which it was participating in with a central government
administered state-owned enterprise, has already received its
first injection of 12 billion yuan according to the statement.
Although the statement released on Tuesday did not
explicitly mention debt-to-equity swaps, a separate article
published Wednesday by official media China Daily said the
reduction in leverage would be accomplished mainly through such
A China Construction Bank representative had no immediate
comment when reached by telephone.
On Monday evening the State Council, China's cabinet,
released long-awaited guidelines for debt-to-equity swaps,
mooted as one solution to China's enormous corporate debt
Corporate China sits on $18 trillion in debt, equivalent to
about 169 percent of gross domestic product (GDP), according to
the most recent figures from the Bank for International
In a news briefing, a high-level official warned the swaps
are not a "free lunch" for troubled companies, adding that
loss-making "zombie" firms are strictly forbidden from such
exchanges, which will be used mainly to help high-quality firms
that face temporary difficulties.
International institutions have warned Beijing to stop
financing weak firms, especially inefficient state-owned
enterprises, which tend to crowd out the private sector.
The government will take a multi-pronged approach to cutting
company debt, including encouraging mergers and acquisitions,
bankruptcies, debt-to-equity swaps and debt securitisation,
according to the guidelines.
The debt-to-assets ratio of Wuhan Iron and Steel reached 76
percent at the end of 2015 according to China Daily. The paper
said China Construction Bank is aiming to help lower that ratio
to about 65 percent, citing comments by Zhang Minghe, head of
China Construction Bank's debt-to-equity swap programme.
Wuhan Iron and Steel is in the midst of a merger with its
larger rival Baoshan Iron and Steel which will create the
world's second-largest steel producer.
($1 = 6.6685 Chinese yuan renminbi)
(Reporting by Nathaniel Taplin and Winni Zhou; Editing by