No equity swaps for China’s zombies
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.” –