NDRC: Mar­ket forces will shape debt-to-eq­uity swaps Of­fi­cial rules out co­er­cion but says trou­bled firms will be per­suaded to con­sider the al­ter­na­tive op­tion

China Daily (Hong Kong) - - BUSINESS - By WANG YANFEI

The first coal-fired power project led by a Chi­nese pri­vate com­pany kicked off con­struc­tion on Mon­day in In­done­sia’s West Kal­i­man­tan prov­ince.

Kal­bar-1 power sta­tion, a co­op­er­a­tion project be­tween In­done­sia Power, a sub­sidiary of In­done­sian power util­ity Perusa­haan Listrik Ne­gara and China’s Suzhou-based pri­vate com­pany Golden Con­cord Hold­ings Ltd, is ex­pected to reach an in­stalled ca­pac­ity of 200 megawatts when put into op­er­a­tion in 2020, GCL said on Wed­nes­day.

GCL is the first pri­vate Chi­nese com­pany to sign a pow­er­pur­chase agree­ment with In­done­sia, which is plagued by en­demic elec­tric­ity short­ages.

An­a­lysts said China and In­done­sia are highly com­ple­men­tary and with many Chi­nese descen­dants in In­done­sia, it is rel­a­tively easy for Chi­nese en­ter­prises to in­vest in the coun­try.

“As an im­por­tant in­fra­struc­ture project, Kal­bar-1 not only will of­fer much-needed elec­tric­ity to In­done­sia, but also can cre­ate more jobs and gen­er­ate more tax rev­enue,” said Han Xiaop­ing, chief in­for­ma­tion of­fi­cer of China En­ergy Net Con­sult­ing Co Ltd.

China will stick to mar­ket­based prin­ci­ples while pro­mot­ing debt-to-eq­uity swaps to tackle debt prob­lems of com­pa­nies, an of­fi­cial of the na­tion’s top eco­nomic reg­u­la­tor said on Wed­nes­day.

“The gov­ern­ment will en­cour­age debt-to-eq­uity pro­grams but won’t force com­pa­nies and cred­i­tors to make swap deals,” said the of­fi­cial with the Na­tional De­vel­op­ment and Re­form Com­mis­sion, who sought anonymity.

Debt-to-eq­uity swaps will be key to low­er­ing cor­po­rate debt lev­els, and are ex­pected to gather pace in the fu­ture with im­proved reg­u­la­tion, the of­fi­cial said.

China un­veiled guide­lines for such swaps late last year to help com­pa­nies re­duce their mount­ing debt.

From De­cem­ber to July, more than 70 en­ter­prises in cer­tain sec­tors rid­dled with over­ca­pac­ity signed agree­ments to launch the swaps, ac­cord­ing to the com­mis­sion.

That would al­low banks hold­ing debt in those en­ter­prises to con­vert it into eq­uity.

Total con­tract value of such swaps has al­ready ex­ceeded 1 tril­lion yuan ($149.4 bil­lion), ac­cord­ing to the NDRC.

More than 50 per­cent of the en­ter­prises that opted for swaps are coal pro­duc­ers, fol­lowed by steel, trans­porta­tion per­cent and metal com­pa­nies, ac­cord­ing to a re­port by China Ori­ent As­set Com­pany re­leased in July.

“Debt-to-eq­uity pro­grams work well for com­pa­nies that are fac­ing short-term ob­sta­cles but are ex­pected to see prof­its in the fu­ture,” said Xu Gao, chief econ­o­mist with China Ever­bright Se­cu­ri­ties. “The key is to en­sure the pro­grams can be im­ple­mented us­ing le­gal means and with high trans­parency.”

Li Pei­jia, a se­nior an­a­lyst with the re­search in­sti­tute of Bank of China, said such ef­forts will help banks solve the bad debts prob­lem, but the gov­ern­ment may need to of­fer more in­cen­tives to pro­mote swaps deals.

The gov­ern­ment is able to pro­vide more pol­icy sup­ports such as help­ing banks to im­prove risk man­age­ment and gather in­for­ma­tion to se­lect proper can­di­dates for swaps of­fered by many debt­laden com­pa­nies, Li said.

As more good ex­am­ples emerge, more banks and in­vestors are ex­pected to par­tic­i­pate, she said.

With en­hanced ef­forts to rein in debt risks, cor­po­rate debt lev­els have de­clined this year, ac­cord­ing to the NDRC.

By the end of June, the debt-to-as­set ra­tio of China’s ma­jor in­dus­trial en­ter­prises stood at 55.9 per­cent, down by 0.8 per­cent­age points com­pared to the same pe­riod last year, the lat­est data from the Na­tional Bureau of Sta­tis­tics showed.

debt-to-as­set ra­tio of ma­jor in­dus­trial en­ter­prises by the end of June

CHEN SHICHUANG / FOR CHINA DAILY

Two tech­ni­cians ad­just a ro­bot at a high-tech en­ter­prise in Chongqing.

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