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Mark O'Neill

The governor of the People's Bank of China yesterday held out the hope of a debt restructuring at Guangdong International Trust and Investment Corporation (Gitic) that could save the group.

 At a crowded press conference, Dai Xianglong outlined a preferred course to save the group, which would involve a restructuring of its debt to head off a court-imposed bankruptcy settlement.

 'If an agreement can be reached to restructure the debt, the People's Bank will be very glad,' he said.

 'If it cannot be agreed, it will be a judgment of the court [on who will be repaid].'  Gitic collapsed in October with debts of US$4.3 billion, and this month the provincial government announced that it had applied for bankruptcy proceedings to begin.

 Mr Dai said the foreign debt of all the country's international trust and investment corporations (Itics) was far smaller than commonly believed.

 'If you put them together it makes $8.1 billion,' Mr Dai said, adding that the actual amount was 'much less' than the $50 billion rumoured in media reports.

 The figures did not include debts incurred by Gitic.

 Mr Dai said its creditors would discuss debt repayment in detail.

 'If all the externally registered debt was paid, most domestic creditors would not be repaid at all,' he said.

 'In an extreme case, the Hong Kong branch of a foreign bank might be repaid but not its Guangzhou branch.

 'The seniority of repayment will be decided by the Supreme Court, but there will be a creditors' conference in April.

 'The repayment process will be discussed in depth with creditors in conjunction with the Supreme Court.'  Mr Dai said the debt repayment 'is not a decision by the court yet' and that the opinion of creditors would be solicited, including a 'possible restructuring'.

 Asked how much the closure was due to malpractice by Gitic officials, he said the matter was in the hands of the courts.

 'If corruption or bribery is discovered, they will be dealt with according to the law,' he said.

  If a foreign creditor had registered the debt, that did not mean he had a guarantee of repayment from the government.

 However, the debtor had the right to use yuan to purchase foreign exchange to repay the debt, he said.

 Mr Dai stressed that the foreign debt of the mainland's 239 Itics was less than many thought.

 Of the $8.1 billion total, $6.7 billion is direct debt and $1.4 billion in the form of guarantee.

 'About $2 billion is due or overdue,' he said.

 Foreign bankers believe the actual figure, including debt not registered with the central government, to be substantially higher.

 Mr Dai was asked to respond to the bitterness among foreign banks who believed that they had lent to Itics with an implicit, if not legal, guarantee that the state would repay them.

 In 1995, local governments were banned from making such guarantees, he said.

 'Those who gave such guarantees before have responsibility. It was not intentional deceit of foreign investors,' he said.

 The number of Itics peaked at almost 1,000 in 1992 and they are being restructured and merged to introduce economies of scale.

 But Mr Dai dismissed a suggestion that the mainland government was now looking to scale back the number of Itics to just a handful as had been hinted in the media.

 'It is true that we are determined to restructure this sector, but that does not mean that we are going to close most of them and leave only a couple of dozen,' he said.

 He insisted that, despite Gitic's collapse, Beijing's sovereign rating as a borrower remained excellent, as shown by market reaction to the recent bond offering by the Ministry of Finance.

 Mr Dai pointed to the $145 billion in foreign exchange reserves, almost the same as the mainland's foreign debt, of which 30 per cent is owed by foreign-invested companies, plus the country's gold reserves, its contribution to the International Monetary Fund and the foreign exchange holdings of the big four state banks.

 Analysts said Beijing's handling of the repayment of foreign debt would affect the extension of foreign credit to the mainland.

Gzitic plan dismissed, Page 10 



Dai sounds Gitic hope