Two of China’s Big Five banks consider new debt-for-equity swap units


Two of China’s largest state banks are considering setting up new companies for the purpose of handling debt-to-equity swaps, officials at the two lenders said, in the latest steps taken to mitigate the heavy debt burden that has put a strain on corporate earnings.

Earlier this year, Chinese policymakers introduced the debt-to-equity swap programme to convert some bank debt into equity, as a way to reduce China’s corporate debt overhang, a result of firms finding it tougher to repay their loans in leaner times.

“Our goal is to do as many of those projects as we can,” said Zhang Minghe, head of the debt-for-equity work team at China Construction Bank Corp (CCB), the country’s second biggest lender, during the bank’s post-earnings call late on Friday.

Bank of Communications Co (BoCom) also said it was exploring the possibility of setting-up a new entity focusing on debt-for-equity swaps in a separate post-earnings call late on Friday. Corporate China sits on $18 trillion in debt, equivalent to about 169 percent of gross domestic product (GDP), which some economists fear could destabilise the world’s second largest economy.

State-owned CCB has been leading China’s latest round of debt-for-equity swaps, announcing two multi-billion deals since Beijing re-launched the scheme earlier in October. CCB has more than 50 debt-for-equity swap deals in the pipeline, which will span a variety of sectors. Earlier this month, CCB agreed to set up a 24 billion yuan ($3.55 billion) transformation and development fund with Wuhan Iron and Steel Group Corp to help the steel firm reduce leverage.

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