Date
27 March 2017
PBoC chief Zhou Xiaochuan said details of the planned debt-for-equity swap progam are still being hammered out by authorities. Photo: Reuters
PBoC chief Zhou Xiaochuan said details of the planned debt-for-equity swap progam are still being hammered out by authorities. Photo: Reuters

China eyes debt-for-equity swap for large firms

China’s central bank chief has unveiled a debt-for-equity swap program that would allow large companies with overcapacity issues to reduce their debt burdens.

Speaking at an event hosted by the Organization for Economic Cooperation and Development in Washington on Thursday, People’s Bank of China governor Zhou Xiaochuan said details of the plan are still being hammered out by authorities, the Wall Street Journal reported.

Zhou said small companies aren’t expected to benefit significantly from the planned program as they’re less indebted than their bigger brethren.

Analysts say the plan could saddle banks with near-worthless stock and squeeze their liquidity, the newspaper said.

They say it could also risk keeping “zombie” companies afloat while making lenders even more strapped for capital, the report added.

The central bank has taken several steps to encourage banks to lend to small and private companies.

But so far progress has been slow as large state banks, which dominate corporate lending in China, still prefer to lend to large state-owned corporate clients, the Journal said.

“We don’t have enough community banks to lend to small and medium-sized enterprises,” Zhou was quoted as saying.

– Contact us at [email protected]

RC/CG

EJI Weekly Newsletter

Please click here to unsubscribe