Banks Banks set­ting set­ting up up own dis­tressed dis­tressed as­set as­set arms for debt-to-equity swaps man­age­ment arms

Strat­egy is to shift away from prof­its based on rate spreads Move is part of busi­ness strat­egy shift away from prof­its based on in­ter­est rate spreads

China Daily (USA) - - BUSINESS - By JIANG XUE­QING jiangx­ue­qing@chi­nadaily. By JIANG XUE­QING jiangx­ue­qing@ chi­

China’s five largest Sta­te­owned com­mer­cial banks are plan­ning to set up their own as­set man­age­ment sub­sidiaries to carry out debt-to-equity swap China’s pro­grams,five largest­said peo­ple Sta­te­owned­com­mer­cial with knowl­edge of the banks mat­ter. are plan­ning Agri­cul­tur­alto set up Bank­their ownof China as­set­man­age­mentsub­sidiariesLtd an­nounced on Tues­dayto carry its out board debt-to-eq­ui­tyof direc­tors swap ap­proved pro­grams, the said pro­posal peo­ple to with es­tab­lish knowl­edgea whol­lyof the owned mat­ter. sub­sidiary, ABC As­set Man­age­ment Agri­cul­tur­alCo, in Bank Bei­jing of with China a to­tal Ltd cap­i­tal an­nounced con­tri­bu­tionon Tues­dayof 10 bil­lion­its yuan board ($1.45of di­rec­tors­bil­lion). ap­provedABC As­set the will pro­posal spe­cial­ize to in es­tab­lishthe debt-to-eq­ui­tya wholly ownedswap busi­ness, sub­sidiary, in­clud­ingABC As­set ac­qui­si­tion Man­age­ment of debt Co, as­sets,in Bei­jing con­vert­ing with a to­tal debt cap­i­tal­into equity, con­tri­bu­tion­hold­ing, man­agin­gof 10 bil­lion and yuan dis­pos­ing($1.45 bil­lion).of equity in debt-to-equity swap en­ter­prises ABCAs­set and will other spe­cial­ize fi­nan­cial in the debt-to-eq­ui­ty­busi­ness, ac­cord­ingswap busi­ness,to the an­nounce­­clud­ing ac­qui­si­tion of debt The as­sets, in­vest­ment, con­vert­ing which debt will into be equity, funded hold­ing,by ABC’s man­agin­gown cap­i­tal, and dis­pos­ing“meets theof equity bank’s in needs debt-to-eq­ui­tyto adapt swapto changes en­ter­prises in the in­ter­na­land other and fi­nan­cialex­ter­nal busi­ness, eco­nomic ac­cordingand fi­nan­cialto the en­vi­ron­ment”. an­nounce­ment.

“It The will in­vest­ment,en­able the which bank willto en­hance its com­pet­i­tive­ness and grad­u­ally trans­form its busi­ness model from over­re­liance on the de­posit and loan busi­ness and to carry out in­te­grated oper­a­tions,” the bank said.

Zhang Minghe, who leads the debt-to-equity swap busi­ness of China Con­struc­tion Bank Corp, said CCB is seek­ing to set up its own in­vest­ment Zhang Minghe, of­fi­cial of CCB man­age­ment com­pany and will ac­tively ap­ply for reg­u­la­tory ap­proval.

“As far as we know, all five of the large State-owned com­mer­cial Bank banks Corp, are said think­ingCCB is alike. seek­ing Each to is set con­sid­eringup its own es­tab­lish­ing in­vest­ment a sub­sidiary man­age­ment with com­pa­nya reg­is­tered and cap­i­tal­will ac­tive­lyof 10 bil­lion ap­ply yuan. for The reg­u­la­to­ry­fi­nal re­sult ap­proval.will de­pend on the “As res­o­lu­tion­far as we of know,the board­all fiveof direc­tors,”of the largehe said. State-owned com­mer­cial“We com­mer­cial­banks are banks think­ing re­gard alike. this Eachas an is op­por­tu­nity con­sid­er­ing to es­tab­lish­ing­trans­form our a busi­ness,” sub­sidiaryhe added.with a reg­is­tered cap­i­tal of 10 bil­lion Af­ter yuan.the sub­sidiariesThe fi­nal re­sultare es­tab­lished,will de­pend on they the will res­o­lu­tion­raise fund­sof the for board debt-to-eq­ui­tyof direc­tors,” swaps he from said. qual­i­fied in­sti­tu­tional and in­di­vid­ual“We com­mer­cial­in­vestors. banks

The sources of money will in­clude in­surance funds, pen­sion funds and in­dus­trial in­vest­ment funds that can make long-term in­vest­ments.

“By set­ting up a sub­sidiary, we’ll have a pro­fes­sional team spe­cial­iz­ing in debt-toe­quity swaps. More­over, it will be eas­ier for the sub­sidiary, as a le­gal en­tity, to iso­late risks from the bank,”

Zhang Minghe,

Zhang said. equity Ac­cord­ing swaps. to More­over,the State it Coun­cil’swill be eas­ier guide­lines,for the sub­sidiary,banks are onlyas a le­gal al­lowed en­tity, to to trans­fer iso­late debt­srisks to from im­ple­ment­ingthe bank,” Zhanga­gen­cies, said. in­clud­ing fi­nan­cial as­set man­age­men­tAc­cord­ing to com­pa­nies,the State in­sur­anceCoun­cil’s guide­lines,as­set man­agers, banks an­dare only newly al­lowed es­tab­lishedto trans­fer­bank sub­sidiaries.debts to im­ple­ment­ingThe im­ple­ment­ing agen­cies, agen­cies in­clud­ing will fi­nan­cialthen turn as­set the man­age­ment­debts into the com­pa­nies,equity of tar­get in­surance com­pa­­set man­agers, and Com­pared­newly es­tab­lished­with choos­ing bank a sub­sidiaries. third-party The im­ple­ment­ing im­ple­ment­ing agency, agen­cies bankswill then­will have turn ad­van­tages­the debts into by the set­ting equity up of their tar­get own com­pa­nies. sub­sidiaries with the Com­pared in­vest­ment with func­tion, choos­ing said a Lou third-party Wen­long, vice-pres­i­dent im­ple­ment­ing of agency, Agri­cul­tural banks Bank will of haveChina, ad­van­ta­gesin an ar­ti­cle by pub­lished­set­ting upin 21st their Cen­tu­ry­own sub­sidiariesBusi­ness Her­ald with last the month. in­vest­ment func­tion, said Lou “First, Wen­long, banks vice-pres­i­den­thave a bet­ter of Agri­cul­tural un­der­stand­ing Bank of of tar­get China, com­pa­niesin an ar­ti­cle than pub­lished third-party in im­ple­ment­ing21st Cen­tury Busi­nessHer­alda­gen­cies, it will last more ef­fi­cient and smooth “First, to banksgo through­have a bet­terthe pro­ce­dures un­der­standin­gof of com­mer­cial­tar­get com­pa­nies ne­go­ti­a­tions, than due third-par­ty­dili­gence and im­ple­ment­ing val­u­a­tion for agen­cies, debt-toe­quity it will be swaps.” more ef­fi­cient and smooth “Se­cond,to go the through sources theof funds pro­ce­dureswill be of more com­mer­cial­diverse and ne­go­ti­a­tions,se­cure be­cause­due dili­gence­banks can and make val­u­a­tion full for use debt-to-eqof their own cap­i­tal or raise funds from as­set man­age­ment prod­ucts and bond is­suance.”

“Fi­nally, banks will ben­e­fit from po­ten­tial earn­ings of tar­get com­pa­nies af­ter their busi­nesses take a turn for the bet­ter, which will off­set pos­si­ble fi­nan­cial losses caused by trans­fers of debts to third­party im­ple­ment­ing agen­cies at huge dis­counts,” he said.

We com­mer­cial banks re­gard this as an op­por­tu­nity to We trans­form com­mer­cial our busi­ness.”banks re­gard this as an op­por­tu­nity to trans­form our busi­ness.” of­fi­cial of CCB

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