August 8, 2018 / 5:15 AM / 10 months ago

China to make targeted RRR cuts to support debt-to-equity swaps - state planner

BEIJING (Reuters) - China will use policy tools such as targeted cuts in banks’ reserve requirement ratio (RRR) to support debt-for-equity swaps this year as it seeks lower corporate debt levels, the country’s state planner said on Wednesday.

“We will use monetary policy tools, including targeted RRR cuts, to actively provide stable, low-cost medium- to long-term funding for market-based debt-for-equity swaps”, the National Development and Reform Commission (NDRC) said in a statement.

China would also let firms tap capital markets, including raising funds via initial public offerings, to help their debt-to-equity swaps and deleveraging, the NDRC said, adding that the government will speed up the elimination of zombie firms, indebted or loss-making companies that need government support to continue operating.

The central bank’s last RRR cut in June - the third this year - to support debt-for-equity swaps, besides boosting credit support for small firms. [nL4N1TQ059]

China’s economic growth slowed modestly to 6.7 percent in the second quarter, with outlook clouded by an escalating trade dispute with the United States, rising corporate borrowing costs and steep declines in Chinese stocks and the yuan.

China has made some progress in lowering corporate debt under a multi-year deleveraging drive, even as a crackdown on riskier lending practices has pushed up borrowing costs.

China’s policymakers have been pushing for debt-for-equity swaps since late 2016 to ease pressure on debt-ridden firms.

China’s corporate debt ratio fell 0.7 percentage point last year to 159 percent of GDP - the first decline since 2011, according to data from the People’s Bank of China, suggesting some success in Beijing’s deleveraging campaign.

The corporate debt mountain mostly stems from state-owned firms that have traditionally received the bulk of state stimulus funds and bank loans.

The NDRC said it would start to keep track of state-owned firms who warrant special attention and supervision and will specify time-bound for reductions in their debt-to-asset ratios.

Reporting by Stella Qiu and Kevin Yao;p Editing by Simon Cameron-Moore

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