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May 24, 2019

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Mechanism for debt-to-equity swap planned

China will set up a proper pricing mechanism for debt-to-equity swap programs and develop new approaches to pursuing swaps to promote market-oriented and law-based debt-to-equity swap.

The goal is to help ease companies’ debt burdens and boost their vitality, a State Council executive meeting chaired by Premier Li Keqiang decided on Wednesday.

Premier Li pointed out that all debt-to-equity swap programs must be carried out in a market-oriented, law-based and category-by-category manner. Competent government departments should provide policy support and enhance inter-agency coordination.

It was pointed out at the meeting that a market-oriented and law-based debt-to-equity swap is an important measure to help companies with the promising market potential to tackle the debt burden, promote steady growth and prevent risks.

Debt-to-equity swap programs worth over 900 billion yuan (US$130 billion) have been implemented since early last year, resulting in a marked improvement in the performance of the companies concerned.

“Our efforts in pursuing market-oriented and law-based debt-to-equity swap in the past few years have paid off. Work on this front has come to a crucial juncture and will play an important role in fostering an enabling business environment and energizing market vitality,” Li said. “Without the success of this endeavor, China’s capital markets can hardly flourish.”

The meeting decided to set up a proper pricing mechanism for the swap and refine the mechanism of exempting liability in case of due diligence in the state-owned enterprises and implementing agencies.

Efforts will also be made to develop new approaches to pursue swaps and the pilot program of debt-to-preferred stocks swap should be expanded. Quality companies with a high leverage ratio as well as quality business segments will be prioritized.

“Our efforts in the market-oriented and law-based debt-to-equity swap have paid off, yet problems that have arisen in the process need to be tackled,” Li said.

“Going forward, we must confront the existing problems and tackle them head-on. What’s important is to expand the scale and coverage of the swap deals and improve their quality to ensure that this endeavor achieves its desired results.”

Multi-pronged measures will be implemented to help the financial asset investment firms involved in the swap programs replenish their capital.


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