November 15, 2016 / 5:45 AM / 3 years ago

China's CCB seals $3.1 billion debt-equity swap with Shandong Energy

BEIJING (Reuters) - China Construction Bank Corp (CCB) said on Tuesday that it has signed a 21 billion yuan ($3.1 billion) debt-for-equity swap deal with Shandong Energy Group Co, as China presses ahead with plans to cut mounting corporate debt.

A sign of China Construction Bank is seen at a branch in Beijing, China, April 21, 2016. REUTERS/Kim Kyung-Hoon/File Photo - RTX2QN11

CCB, the country’s second-largest lender, will set up three funds to invest in state-owned Shandong Energy, China’s fourth-biggest coal producer that mined more than 130 million tonnes last year, the bank said in a statement released on its website.

The debt restructuring will cut Shandong Energy’s debt-to-asset ratio by 6 percentage points and save the group more than 1 billion yuan in financing costs, CCB said.

“The coal industry faces severe excess capacities and the level of consolidation is relatively low,” said Zhang Minghe, head of CCB’s debt-for-equity swap work team.

“We are supporting a pillar company to overcome difficulties and realize its potential to become better and stronger,” he told Reuters.

This is the fifth large-sum debt-for-equity swap announced by CCB so far this month. The state lender has been leading Beijing’s push to reduce the country’s $18 trillion yuan in corporate debt - now at 169 percent of domestic output.

China’s coal firms have performed better in 2016 as a result of the government campaign against over-capacity that cut supply and supported prices. However, the majority of firms suffered losses last year and the sector remains under pressure as demand growth declines and the country encourages switching to cleaner forms of energy.

Shandong Energy is the biggest state-owned firm in the eastern province of Shandong. Its total assets reached 270 billion yuan by the end of October.

The coal producer earned 1.9 billion yuan in profit for the first ten months of the year.

Shandong’s State-owned Assets Supervision and Administration Commission (SASAC), which is the state shareholder in local government-owned firms, also participated in the signing.

“This market-based debt-for-equity agreement between CCB and Shandong Energy is a showcase for the province’s state-owned enterprise reforms,” CCB said.

Reporting By Shu Zhang in BEIJING and David Stanway in SHANGHAI; Editing by Christian Schmollinger

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