Mainland-controlled banks are likely to suffer most under the preliminary restructuring plan for the insolvent Guangdong Enterprises (Holdings) (GDE), which will be announced tomorrow. The rescue plan, aimed at averting the bankruptcy of the SAR investment arm of the Guangdong provincial government, is likely to entail significant losses to creditors, sources close to the restructuring said. But a senior source in the Hong Kong Association of Banks (HKAB) said Premier Zhu Rongji had given his commitment all outstanding loan principal and interest commitments of GDE would ultimately be repaid. The source - a member of last week's HKAB delegation to Beijing - said Mr Zhu had promised at a meeting with the delegation the government would try its best to repay all of GDE's outstanding loans, including the loan principals and interest accruals. The rescue plan would provide an opportunity to minimise losses, if creditors would be willing to take a long-term interest in the group, the source said. Guangdong executive vice-governor Wang Qishan is expected to announce the rescue package prepared by GDE's financial adviser, Goldman Sachs, at a financial creditors' meeting tomorrow afternoon. Some creditor banks have speculated the rescue proposal would only allow them to recover between 60-70 per cent of their loans. But while foreign creditor banks have been most vocal against any losses in the GDE restructuring, it is the mainland-backed banks which face being the biggest casualties. Mainland-funded banks accounted for 46 per cent of the total loans of HK$12.46 billion extended to GDE by about 80 financial institutions, sources said. The 12-member Bank of China group alone made up more than $4 billion of the total loans. The Bank of China topped the list with about $1.2 billion, followed by Kincheng Bank in the same group with about $800 million. Behind them are Standard Chartered Bank with $760 million and HSBC with $670 million, which together with other local banks accounted for about 22 per cent of GDE's total loans. Meanwhile, Mr Zhu has reportedly asked Bank of China president Wang Xuebing to demand Wang Qishan strengthen the communication between the Guangdong provincial government, GDE, financial adviser Goldman Sachs and the creditor banks. Mr Zhu said debt-to-equity swaps could be one of the many ways to proceed with GDE's restructuring. A source familiar with the situation said he hoped financial creditors and the company would be able to reach a consensus on the basic principles of the plan by the end of summer, with an agreement struck on the final proposal in about a year. The bailout plan, which would need the approval of all creditor banks, aims to create a commercially viable and financially independent group through corporate, financial and management restructuring. The comprehensive restructuring would include not only GDE and its 59.81 per cent-held publicly listed Guangnan Holdings, but also its 40.54 per cent-held publicly listed Guangdong Investment group and Nam Yue. Mr Wang Qishan said in March the Guangdong provincial government had taken into account the possible impact on Hong Kong when deciding to save the GDE group.
