China Cinda Asset Management, the debt-settlement arm of the China Construction Bank, has announced the first equity swap in which foreign investors have bought debt to acquire a share in a domestic firm.
The agreement, which was signed in March last year and completed earlier this month, saw United States-based energy company Alliant International and Transpacific Capital pay US$14 million to take 70 per cent in a newly formed Anhui-based joint-venture power plant.
The joint venture was created through a restructuring of Bengbu Thermal Plant, a loss-making energy producer.
Its main creditor, China Construction Bank, transferred 172.9 million yuan (about HK$162 million) in debt to China Cinda in 1999.
Alliant and Transpacific bought the majority of that debt, while Bengbu Thermal transferred its buildings, land and other facilities to take a minority share in the new company.
The Bengbu deal represents a rare victory for the nation's asset management companies (AMC), which have been plagued by a litany of problems since their establishment two years ago as part of Beijing's effort to retire 1.3 trillion yuan in bad debt held by the country's Big Four state commercial banks.
Many of the AMC's headaches result from the miserable quality of the assets they acquired, along with the reluctance of state companies to repay their outstanding loans.