No eq­uity swaps for China’s zom­bies

The Myanmar Times - - International Business -

CHINA’S un­dead army of zom­bie cor­po­ra­tions will not qual­ify for debt-fore­quity swaps, the gov­ern­ment said, as Bei­jing tries to curb risks of bal­loon­ing cor­po­rate debt.

New guide­lines posted on the web­site of the State Coun­cil, China’s cab­i­net, sought to of­fer some clar­ity to long-dis­cussed but hazy plans to re­duce debt by let­ting lenders swap bad loans for shares in some debtor com­pa­nies.

The pol­icy will of­fer debt-to-eq­uity swaps with mar­ket-de­ter­mined val­ues to help “high-quality” firms with long-term growth prospects over­come “tem­po­rary set­backs”, said the doc­u­ment, while bar­ring “zom­bie com­pa­nies” and those with poor credit rat­ings.

It called for merg­ers and ac­qui­si­tions of debt-choked com­pa­nies to im­prove com­pet­i­tive­ness and re­duce lever­age.

China’s com­mu­nist authorities have re­peat­edly pledged to give mar­ket forces a greater role in the world’s sec­ond-largest econ­omy, where growth is slow­ing and lum­ber­ing in­dus­trial firms, many of them sta­te­owned, re­main a drag.

The guide­lines came as an­a­lysts have sounded alarm bells over risks of a blowout in the econ­omy, with to­tal debt surg­ing 465 per­cent over the past decade, and cor­po­rate debt leap­ing to 165pc of GDP in 2015.

If cor­po­rate bor­row­ing growth does not slow, the ra­tio of sour loans could triple to 17pc by 2020, S&P Global Rat­ings said in a re­port, adding, “We believe that the cur­rent growth rate of China’s debt is not sus­tain­able for long.” –

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