November 22, 2016 / 12:55 PM / 3 years ago

China's AgBank to set up $1.45 billion debt swap subsidiary

BEIJING, Nov 22 (Reuters) - Agricultural Bank of China (AgBank) will set up a wholly-owned asset management division to undertake debt-for-equity swaps, the country’s third biggest bank by assets said in a filing to the Shanghai Stock Exchange on Tuesday.

The subsidiary - ABC Asset Management Co Ltd - will have registered capital of 10 billion yuan ($1.45 billion), the statement said.

It will buy up debts, convert debt into equity, as well as hold, manage and dispose of equity in debt-for-equity swap enterprises, AgBank said.

AgBank’s move comes after China’s State Council published guidelines in October for reducing corporate debt by encouraging debt-for-equity swaps, as well as mergers and acquisitions, bankruptcies, and debt securitisation.

China’s businesses sit on $18 trillion in debt, which is equivalent to about 169 percent of gross domestic product.

Government officials have said the swaps are not a “free lunch” for troubled companies, and that the deals would be used mainly to help high-quality firms that face temporary difficulties.

China Construction Bank (CCB), the country’s second-biggest bank, already has announced seven debt-reduction deals with a total value of 83 billion yuan.

CCB has also started talks with foreign investors to take part in the deals, a senior banker told Reuters on Tuesday.

Bank of Communications Co told analysts and investors last month that it also was exploring the possibility of setting-up a new entity focusing on debt-for-equity swaps.

$1 = 6.8850 Chinese yuan renminbi Reporting By Matthew Miller. Editing by Jane Merriman

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