Start your day with what’s moving markets in Asia. Sign up here to receive our newsletter.
Almost a year after China rolled out steps to rein in soaring corporate leverage, concerns are rising that undeserving companies are benefiting while households are getting saddled with risks.
The most important market news of the day.
Get our markets daily newsletter.
China unveiled guidelines for debt-to-equity swaps in October, part of measures to trim the worlds biggest corporate debt loads. The idea was that healthy firms would use the program to cut interest-bearing borrowings, while bloated companies would be shunned. But it hasnt always worked out that way, even as the total value of swaps reached 776 billion yuan ($116 billion) in the second quarter when volumes jumped to a record, according to Natixis SA.
While Chinas State Council said in October that zombie firms may not take part, 55 percent of the swaps last quarter were in the coal and steel industries, which are plagued by overcapacity, Natixis says. The stakes are high for lenders and even individual investors, some of whom buy wealth management products repackaged from the swaps.
The absence of a clear definition of zombie is part of the problem, according to Fitch Ratings. Views vary on whether further guidelines on the program released this month by the banking regulator will help address these issues.
The program is attracting bad companies because they see debt-to-equity swaps as a way to get a bailout, said Chi Lo, Greater China senior economist at BNP Paribas Asset Management.You can imagine the zombie companies will be just like cancer cells that eat into the system.
The swaps generally work like this: A bank agrees to take over a companys debt from its original lenders. The bank sets up a unit which has other shareholders that help share risk. The unit assumes the debt and conducts a transaction with the company to convert it into equity. It can then dispose of the stake.
In the most recent draft guidelines released earlier this month by the China Banking Regulatory Commission, a bank is required to own no less than a 50 percent stake in the unit conducting the swaps. The guidelines also say that the units can sell bonds and borrow from the interbank market.
Before the bank units dispose of their equity stakes in the companies, they may struggle to manage them, according to Victor Jong, a partner at the business recovery services unit of PricewaterhouseCoopers LLP in Shanghai.
Among struggling companies that have signed swap agreements are Sinosteel Corp., which receivedsupport from the Chinese government to avoid defaulting on its debt in 2015.
Another firm, Shandong Gold Group,signed a debt-to-equity swap agreement with Industrial & Commercial Bank of China Ltd. in December. Shares of its listed unit Shandong Gold Mining have dropped about 13 percent since then, compared with a 1 percent gain for the broader Shanghai Composite Index in that period.
China intends debt equity swaps as part of corporate de-leveraging and to help clean up bank balance sheets, but the list of deals announced so far suggests Chinas definition of a good versus a zombie company is quite different from that of international investors, saidMatthew Phan, analyst at CreditSights.
The growth in such swaps has also prompted concerns that risks are being shifted to individual investors, as funds repackage equity stakes into wealth management products. Households are being harmed, said Alicia Garcia Herrero, Hong Kong-based chief economist at Natixis.
China Construction Bank Corp. raised capital by repackaging swapped debt of Yunnan Tin Group and Wuhan Iron & Steel into wealth management products aimed at individual investors, according to S&P Global Ratings.
Two calls to Li Chengyang, media officer at China Construction Bank in Beijing, went unanswered.
While debt-to-equity swaps reduce refinancing risks for firms, if there are no measures to make those companies better, the program is only kicking the can downthe road, according to Ivan Chung,head of Greater China credit research at Moodys Investors Service.
The debt swap program may be challenging to implement if banks see no upside to the transactions and banks may prefer to hold debt rather than subordinated equity, said Jason Bedford, banking analyst at UBS Group AG in Hong Kong.
As a whole, Im pretty skeptical about the debt to equity swap program and how effective it is at saving good companies, said Phan at CreditSights. Bad loans have been bought partly by households but in five years time, the companies could be in trouble again.
Continue reading here:
China’s Debt Swaps Surpass $100 Billion – Bloomberg
- Zombie | Wookieepedia | FANDOM powered by Wikia - December 12th, 2018
- Zombie | fictional creature | Britannica.com - December 12th, 2018
- Zombie - Monster Girl Encyclopedia Wiki - December 12th, 2018
- Zombie royale.io - Play Zombieroyale io battle, unblocked - December 12th, 2018
- Zombie - Simple English Wikipedia, the free encyclopedia - December 11th, 2018
- Zombie | RuneScape Wiki | FANDOM powered by Wikia - December 11th, 2018
- Zombies - Investopedia - December 11th, 2018
- Zombi 2 (1980) - Rotten Tomatoes - December 11th, 2018
- The Ultimate Zombie Apocalypse Survival Quiz - December 11th, 2018
- Zombie | Plants vs. Zombies Wiki | FANDOM powered by Wikia - December 9th, 2018
- Amazon.com: Zombie: Tisa Farrow, Ian McCulloch, Al Cliver ... - August 9th, 2018
- Zombie Games - Free Online Zombie Games - July 18th, 2018
- Zombie Official Minecraft Wiki - July 3rd, 2018
- Zombie Chase Parkour POV - YouTube - June 21st, 2018
- Sightings of 'zombie' dogs prompt warnings in Chicago - The San Diego Union-Tribune - September 7th, 2017
- YWCA prepares for 2nd annual zombie run - KFYR-TV - September 7th, 2017
- Langhorne Slim Releases "Zombie" off Forthcoming New Album Lost at Last Vol. 1 - Paste Magazine - September 7th, 2017
- 'Zombie' coyotes reportedly seen in suburbs, and residents warned to keep away - Chicago Tribune - September 6th, 2017
- ARZombi Is A Zombie Shooter Made Using ARKit - UploadVR - September 6th, 2017
- Should You Forgive Your Zombie Relative? Ellen Page In 'The Cured' Watch TIFF Clip - Deadline - September 6th, 2017
- 'Zombie dogs' are roaming the suburbs of Chicago - The Week Magazine - September 6th, 2017
- Zombie Walk to benefit local charity - Bowling Green Daily News - September 6th, 2017
- Zombie Run will benefit Muskogee Animal Shelter - Muskogee Daily Phoenix - September 6th, 2017
- New 'The Walking Dead' AR app tests your zombie battle plan - CNET - CNET - September 6th, 2017
- Watch an extreme scene from TIFF zombie film Les Affams - EW.com - September 6th, 2017
- 9th Circuit Revives Class Action Over 'Zombie' Smartphone Cookies - Courthouse News Service - September 6th, 2017
- SecureView: Assemblyman James Skoufis Hosts Demonstration to Clean Up Zombie Property Blight - Markets Insider - September 6th, 2017
- Chicago's Newest Problem Is An Invasion Of ZOMBIE DOGS - The Daily Caller - September 5th, 2017
- Daily Deal: Zombie Army Trilogy Is 80% Off On Steam - Gameranx (blog) - September 5th, 2017
- 'Zombie' dogs are actually infected coyotes, police warn - Atlanta Journal Constitution - September 5th, 2017
- Your daily 6: A third child for William and Kate; zombie dogs in Chicago - STLtoday.com - September 5th, 2017
- 'Zombie dogs' roaming near Chicago are infected coyotes, police ... - Fox News - September 3rd, 2017
- Railey: Confronting 'zombie mindsets' and a Charlottesville martyr - Winston-Salem Journal - September 3rd, 2017
- Trump Pardons Zombie Apocalypse - Indian Country Today Media Network - September 3rd, 2017
- Police warn of infected 'zombie' coyotes confused for stray dogs - KCRA Sacramento - September 2nd, 2017
- Survive An Augmented Zombie Reality In Walking Dead: Our World - Shacknews - September 2nd, 2017
- The Bentley You Need For The Zombie Apocalypse Is Finally For Sale - Jalopnik - September 1st, 2017
- Cops warn residents to avoid mange-infected coyotes labeled 'zombie dogs' - New York Daily News - September 1st, 2017
- Cops Warn of Infected 'Zombie' Coyotes Confused for Stray Dogs in ... - NBC Chicago - September 1st, 2017
- 'Zombie' drug Spice addict grabbed terrified girl, 5, outside Primark and gave her a 'bear hug' - Mirror.co.uk - September 1st, 2017
- Rome on cutting edge for dealing with zombie properties - Utica Observer Dispatch - August 31st, 2017
- The Mask Hides My Ugliness: Violence and Trauma in Rob Zombie's 'Halloween' - The Film Stage (blog) - August 31st, 2017
- The Syllabus: Zombie Charlotte Law (updated) - Greensboro News & Record (blog) - August 31st, 2017
- The Night King and Zombie Viserion are comingin Funko Pop! form - Winter Is Coming - August 31st, 2017
- Death of Spain's Zombie Lenders Sends Bank Jobs to Decade Low - Bloomberg - August 31st, 2017
- Rob Zombie's Halloween 10th anniversary: How Tyler Mane ... - EW.com - August 30th, 2017
- Call of Duty Black Ops III and Zombie Chronicles Officially Bundled Together - Twinfinite - August 30th, 2017
- Here a few of Lil Uzi Vert's favorite things: Rob Zombie, Rugrats and more - Alternative Press - August 30th, 2017
- Zombie shooter Dead Alliance now available - Flickering Myth (blog) - August 30th, 2017
- Brooklyn Decker Compares Herself to 'Zombie Taylor Swift' in 'Look What You Made Me Do' Music Video - Us Weekly - August 29th, 2017
- Call of Duty: WWII's Zombies Is Changing its Tone and That's Exactly What it Needs - Twinfinite - August 29th, 2017
- Rob Zombie on Tobe Hooper: 'The Texas Chain Saw Massacre' Changed My Life - RollingStone.com - August 28th, 2017
- 'Zombie' translation book authored by Ashland professor - Richland Source - August 28th, 2017
- City set to file first court action against 'zombie property' - Rome Sentinel - August 28th, 2017
- Zombies, romance and revenge drive record 'Game of Thrones' ratings - Reuters - August 28th, 2017
- Video: President Trump's zombie claim of widespread voter fraud in the 2016 election - Washington Post - August 28th, 2017
- Hudson Confidential: 'Zombie' utility poles outlawed in Cornwall-on-Hudson - Times Herald-Record - August 28th, 2017
- Falls steps up its fight against 'zombie homes' - Niagara Gazette - August 28th, 2017
- City seeks help in identifying 'zombie properties' - The Recorder (subscription) - August 28th, 2017
- Zombie homes shame campaign spreads to Niagara Falls - Spectrum News - August 26th, 2017
- Zombie run scheduled at Castle of Muskogee - Tulsa World - August 26th, 2017
- 19 Years Ago: Rob Zombie Debuts His Solo Album "Hellbilly Deluxe" - WAAF.com (blog) - August 25th, 2017
- What can the Zombie Apocalypse teach us about ourselves? [Video] - OUPblog (blog) - August 25th, 2017
- Like A Movie Zombie, Tax Reform Refuses To Die - Investor's Business Daily - August 25th, 2017
- Buy Your Tickets Now For 'Z is for...Zombie!' - Patch.com - August 25th, 2017
- West Milford plans law to slay 'zombie' homes - NorthJersey.com - August 24th, 2017
- 'Game of Thrones': Why the White Walkers and Wights Represent the Best and Worst Zombie Tropes - IndieWire - August 24th, 2017
- Starbucks' new sushi burrito sounds like how zombie outbreaks start ... - GolfDigest.com - August 24th, 2017
- Heavy weekend rains likely when zombie storm Harvey comes to Texas - MyStatesman.com - August 24th, 2017
- Louisville Zombie Walk Attack Funeral! - Louisville Eccentric Observer - August 24th, 2017
- 'State of Decay 2' forces you to pick who becomes zombie food - Engadget - August 22nd, 2017
- The Zombie Polar Bear on Game of Thrones Was Just a Dude in a Green Suit - Esquire.com - August 22nd, 2017
- Zombie Hitler reanimates in Dead Snow 3 - SYFY WIRE (blog) - August 22nd, 2017
- That Zombie Polar Bear on 'Game of Thrones' Was Four Seasons in the Making - Thrillist - August 22nd, 2017
- HESCO Sponsor Zombie Invitational Shooting Competition (Multi-Video) - 184.108.40.206 (press release) (registration) (blog) - August 22nd, 2017
- Dead Snow 3 will feature 'Zombie-Hitler,' says director - EW.com - August 22nd, 2017
- Game of Thrones: Why Everyone on the Set Hated that Zombie Polar Bear - Vanity Fair - August 22nd, 2017
- Community Download: Are You Tired Of Zombie VR Games? - UploadVR - August 20th, 2017
- Rob Zombie to host '13 Nights of Halloween' on HDNET MOVIES - EW.com - August 19th, 2017
- "The Art of Response: Zombie Preparedness" event coming to Abilene in October - Big Country Homepage - August 19th, 2017
Reviewed and Recommended by Erik Baquero