December 9, 2016 / 9:49 AM / 3 years ago

China banks agree debt restructuring deal with Sinosteel: Bank of China

BEIJING (Reuters) - Bank of China (601988.SS) (3988.HK) and five other Chinese banks have signed a debt restructuring deal with troubled steelmaker Sinosteel, in what is among the first significant restructuring deals involving a state-owned enterprise.

A Sinosteel logo is seen on top of a building in Beijing, January 31, 2015. China's Sinosteel has extended the deadline for investors to redeem its bonds to Nov. 16 from the previous deadline of Oct. 16, in order to allow investors to have more time to review the matter, the company said. Picture taken January 31, 2015. REUTERS/Stringer CHINA OUT. NO COMMERCIAL OR EDITORIAL SALES IN CHINA - RTS513E

As the country’s pace of growth stutters, China has made reform of its lumbering and inefficient state-owned enterprises (SOEs) a priority in a bid to kindle competitive behavior.

In a statement on Friday, Bank of China (BoC) outlined details of the agreement with Sinosteel [SINOSD.UL], which could be the formula used for other major overhauls of struggling state-owned enterprises.

Sinosteel became one of the first state-owned firms to encounter bond repayment problems in 2015. The State Council approved the restructuring in September, according to an announcement by a Sinosteel unit at the time.

BoC’s announcement was followed by the posting of two debt-for-equity swaps, part of a wider program mooted by policy makers as a solution to reduce China’s corporate debt overhang.

Also on Friday, Shanxi Coking Coal Group [SHANXA.UL] said it had signed a framework debt-to-equity swap agreement with China Construction Bank Corp (601939.SS)(0939.HK), involving two funds totaling $3.62 billion.

Industrial and Commercial Bank of China (1398.HK)(601398.SS), the country’s largest lender, also said on Friday it signed a $1.45 billion debt-for-equity swap with Shandong Gold Group [SDONGA.UL].

Debt has emerged as one of China’s biggest challenges, with the country’s total load rising to 250 percent of GDP last year. Chinese companies sit on $18 trillion in debt, equivalent to about 169 percent of GDP, according to figures from the Bank for International Settlements. Most of it is held by state-owned firms.

Sinosteel’s bailout will be divided into two parts, including a business rehabilitation plan and a debt restructuring plan, the bank said.

The first phase of the debt restructuring will be for more than 60 billion yuan ($8.70 billion) of debt, including principal and interest. That debt will be divided into two parts. One part will be kept by financial creditors.

For the rest, Sinosteel will set up a stake holding vehicle to issue convertible debt to creditors to swap existing debt, and creditors will have the option to swap convertible debt into equity under certain conditions.

In September, China launched a $52.5 billion state enterprise restructuring fund to advance its ‘supply-side’ reforms.

Reporting by Josephine Mason and Beijing newsroom; Additional reporting by Shu Zhang and Umesh Desai; Writing by Engen Tham; Editing by Muralikumar Anantharaman and Christopher Cushing

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