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Banks

China Construction signs $739 million debt-for-equity swap with Xiamen CCRE

BEIJING (Reuters) - China Construction Bank Corp (CCB) 0939.HK601939.SS signed a 5 billion yuan ($739 million) debt-for-equity swap agreement with state-owned Xiamen CCRE Group [XMMPGI.UL] on Wednesday as China moves to cut its ballooning corporate debt.

The logo of China Construction Bank is seen at a branch office in Zurich, Switzerland September 22, 2016. REUTERS/Arnd Wiegmann/File Photo

The Xiamen CCRE deal is the third debt-for-equity swap announced by CCB, the country’s second largest lender, since policymakers relaunched the scheme in October.

“We’re supporting China’s manufacturing industry to muddle through the current tough period,” Zhang Minghe, head of CCB’s debt-for-equity swap team, told Reuters.

“Through the consolidation of good resources, we are promoting the industry’s transformation.”

Corporate China sits on $18 trillion in debt, equivalent to about 169 percent of gross domestic product (GDP), and some economists fear it could destabilize the world’s second largest economy.

CCB has been leading China’s latest round of debt-for-equity swaps, helping large, debt-laden state firms to lower their leverage and cut financing costs.

Last month, The bank agreed a 24 billion yuan debt restructuring plan to help struggling Wuhan Iron and Steel Group and a 10 billion yuan swap with Yunnan Tin Group, the world’s largest tin producer and exporter.

The bank has more than 50 debt-for-equity swap projects in the pipeline, which will span a variety of sectors, including highly indebted coal and chemical industries, CCB said earlier.

The lender is also planning to set up a new subsidiary for the purpose of handling debt-for-equity swaps.

Xiamen CCRE, a state-owned enterprise directly managed by the City of Xiamen, has 40 billion yuan in assets, according to the company’s website. Its businesses range from transportation equipment manufacturing to real estate and investment.

Xiamen’s State-owned Assets Supervision and Administration Commission, the government shareholder in Xiamen CCRE, also took part in the signing of the framework, according to a statement released on CCB’s website late on Wednesday.

According to the framework, CCB and its related parties will provide about 5 billion yuan to Xiamen CCRE and its affiliates using a variety of channels, including equity investment, to lower the company’s debt ratio and financing costs.

CCB did not provide further details about the swap.

($1 = 6.7617 Chinese yuan renminbi)

Reporting by Shu Zhang and Nicholas Heath; editing by David Clarke

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