China’s banks need coordination for debt-equity swaps, CCB says

China Construction Bank, which is awaiting government approval for a 12 billion yuan fund for buying out bad loans, said the country needs a framework to coordinate debt-for-equity swap programmes among Chinese lenders.

“There’s definitely the need for a panel to coordinate plans among different banks, because the debt structures of some of these Chinese companies are very complicated,” said Wang Hongzhang, chairman of the second-largest Chinese lender by assets, at the 2017 Asian Financial Forum in Hong Kong.

Wang’s comments underscore the challenges facing the Chinese government’s programme to cut corporate debt by 120 trillion yuan (US$18 trillion) to preserve the country’s financial system.

Already, CCB is involved in exchanging more than 100 billion yuan of borrowings by companies into equities, entangled in various legal issues and policy uncertainties.

Chinese banks are barred from owning direct stakes in non-financial companies, a restriction that compels banks to establish their own asset management units to handle these stakes.

The Beijing-based bank has an asset-management unit with 12 billion yuan in seed capital awaiting approvals. In addition, it has agreed to swap 50 billion yuan of debt owed by three state-owned mining and energy enterprises in Shaanxi province for equity stakes this month.