June 5, 2019 / 7:36 AM / 4 months ago

China to encourage more private firms to do debt-to-equity swaps

BEIJING (Reuters) - China will encourage more private companies to enter into debt-to-equity swaps, the state planner said on Wednesday, as policymakers step up support for a key sector that has long faced funding difficulties.

Beijing has encouraged highly indebted firms to enter into such agreements as part of a sweeping, multi-year campaign to reduce risks in the financial system, and the cooling economy is adding to strains on weaker companies.

However, so far most of the swap agreements have featured bloated state-owned firms and details of the arrangements have been scarce.

Chinese firms signed a total of 2.3 trillion yuan ($333.02 billion) worth of debt-to-equity swap agreements as of the end of April, but only 909.5 billion yuan has been invested into actual projects, according to the National Development and Reform Commission (NDRC).

It did not give a specific time span for the total, though authorities have been urging debt-laden firms to enter into such agreements for the last few years.

Of 106 firms whose debt has been swapped for equity, 24 of them are privately owned, Lian Weiliang, the vice head of NDRC, told reporters in a briefing.

“In the next step, we’ll further step up support for private companies to enter debt-to-equity agreements themselves, and encourage them to inject capital into the debt-to-equity swaps of state-owned firms,” said Lian.

He added that those efforts will target highly-leveraged firms or company subsidiaries.

Private firms have been the focus of the government’s growth-boosting measures since last year, with top officials calling on banks to increase lending to the sector as economic growth slowed to the weakest pace in almost 30 years.

Corporate debt defaults, including a number of private enterprises, are on track for another record year in China.

The private sector accounts for 60% of China’s GDP and 80% of urban jobs.

Reporting by Stella Qiu, Cheng Leng and Ryan Woo; Editing by Kim Coghill

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