China tries cure by committee for corporate debt hangover

BEIJING: A US$ 1.44 billion restructuring deal at an insolvent coal mining company in eastern Shandong province offers a glimpse into how China is preparing to tackle a corporate debt burden that has ballooned to US$ 17.9 trillion.

Loss-making Feicheng Mining Group struck the deal last December with 10 banks, led by Agricultural Bank of China Ltd (AgBank), which agreed to extend the group’s loans at concessionary interest rates.

Bankers say the settlement, which required 10 months and 41 rounds of negotiations to complete, only advanced after the formation of a creditors’ committee, a mechanism the China Banking Regulatory Commission (CBRC) officially endorsed last year to manage ‘ troubled firms with a large volume of debt’.

At the opening of parliament on Sunday, Premier Li Keqiang identified ‘bringing down the leverage of enterprises’ – which the Bank for International Settlements says reached 168 per cent of GDP last year – as a key task in 2017.

With bankruptcy, particularly at state- owned companies, practically taboo in China, and lenders forbidden by the CBRC from halting or recalling loans without notice, creditors’ committees are at the vanguard of this monumental exercise.

By the end of last year, 12,836 committees had been set up nationwide, examining borrowing of 14.85 trillion yuan ( US$ 2.15 trillion), equivalent to 17 per cent of total commercial bank loans, according to statistics from the CBRC last week.

In central Henan province, CBRC helped form creditors’ committees at more than 1,300 companies holding 55 per cent of corporate loans in the region by last September, Henan CBRC said. — Reuters