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March 7, 2017

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Swap deal aims to ease SOE’s debt woes

CHINA National Building Material Co has signed a 10 billion yuan (US$1.5 billion) debt-to-equity swap agreement with the Bank of Communications, the country’s biggest producer of construction materials said yesterday.

The money will be in the form of both loans and debt-to-equity swaps, China National Building Material said in a statement.

“The company will use the funds to improve balance sheet, enhance the operating capacity and carry out industrial upgrading and transformation,” the statement said.

The agreement with BoCom, the country’s fifth-biggest lender, represented the latest effort to deal with the debt burden of Chinese state-owned enterprises.

Since November, China’s Big Four lenders have each set up subsidiaries to carry out debt-to-equity deals, which aim to reduce the debt burden on companies, mainly state-owned, by replacing high-cost bank loans with capital from equity investors.

Government officials encourage banks and companies to use the “market-driven” approach to relieve the burden on indebted companies and quicken the pace of industry transformation.

However, there are concerns whether the swaps would simply shift the problem from companies to banks, or whether the swap scheme is “equity in name, debt in essence.”


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