Hong Kong stocks end little changed; mainland banks advance on plan to work out bad-debt problems

Hong Kong’s main share index ended little changed on Wednesday, while H-shares outperformed, with mainland banks among the leaders following media reports that they will set up subsidiaries geared toward swapping debt for equity, a move seen as helping to resolve the mounting bad debt problem among lenders.

The Hang Seng Index ended down 0.01 per cent or 1.38 points at 22,676.69, while Hang Seng China Enterprise Index gained 0.15 per cent to 9,665.99.

China Construction Bank (CCB) was the best performer among the 50 blue chips, with its shares closing 1.42 per cent higher at HK$5.70. Bank of China (BOC) gained 0.87 per cent to HK$3.46 and Industrial and Commercial Bank of China (ICBC) rose 0.87 per cent to HK$4.64.

Agricultural Bank of China (ABC) gained 0.94 per cent to HK$3.22, after announcing late on Tuesday that it is setting up a wholly-owned subsidiary with 10 billion yuan (HK$11.2 billion) of registered capital to conduct debt to equity swaps. Mainland media Caixin reported that China’s big state-owned banks, including ICBC, CCB, ABC, BOC and Bank of Communications all plan to set up similar subsidiaries with about the same initial capital size.

“Investors were certainly buying on the news, as they believe debt-to-equity swaps can solve the bad-debt problem of mainland banks,” Castor Pang Wai-sun, head of research at Core Pacific Yamaichi said.

But he was still concerned that the swap may worsen the cash position of banks as their capital would be locked up in the form of equity in other companies, Pang said.