Debt for equity swaps must be done by professional firms, says Huarong chief
Move will help avoid ‘moral hazards’ in plan as policymakers are yet to decide way forward
Professional asset management companies must handle China’s debt-to-equity swap business to avoid “moral hazards”, Lai Xiaomin, chairman of Huarong Asset Management, one of the top four state-owned bad loan banks, said on Friday in Hong Kong.
Lai, however, did not elaborate on the meaning of “moral hazard”, even as analysts expressed doubts over the debt-to-equity swap scheme being played up by the Chinese mainland authorities since March.
Chen Shujin, an analyst with DBS Vickers Securities, said: “We are concerned that, if local governments press commercial banks to swap the debt from some zombie enterprises into stakes, to avoid the bankruptcy, it would do no good to either the banks long-term earnings, nor to the supply-side reform and the whole economy.”
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Lai said, Huarong was the most appropriate firm to handle the debt-to-equity swap schemes, as it was a “third party” and has rich experience in the business.
“The debt-to-equity swap measure is a good concept...but the top authorities have not decided on how to push it forward so far,” he said.
Analysts said if commercial banks got involved in the business, the big four bad loan banks might face bigger competition.
Huarong’s annual report shows net income from the debt-to-equity disposal business reached 5.52 billion yuan (HK$6.61 billion) in 2015, up 123 per cent from 2014.
