China Construction Bank Corp., the nation’s second-largest lender, said it agreed to form an almost 5 billion yuan ($743 million) debt-to-equity pact with Yunnan Tin Group.
The agreement is part of a larger 10-billion yuan framework the two companies signed to cut Yunnan Tin’s debt ratio, the Beijing-based lender said in a statement on its website on Sunday. It didn’t provide any specifics of the agreement.
The accord is the second debt-relief program Construction Bank has announced in the past week with state-owned enterprises. On Tuesday, the lender announced plans to raise 24 billion yuan for a fund to help lower Wuhan Iron & Steel Group’s debt levels. The bank also flagged its involvement with Yunnan Tin, saying at the time it was seeking to cooperate with the company to lower its leverage.
Chinese policy makers are stepping up their fight against excessive leverage, with cabinet in the past week releasing guidelines for reducing corporate debt and for how banks may swap debt to equity. Corporate debt jumped to 165 percent of China’s gross domestic product in 2015 from 105 percent a decade ago, according to Bloomberg Intelligence.
Yunnan Tin is expected to deliver a total profit of at least 2.3 billion yuan, or not less than 81 billion yuan in income, to investors by 2020, Construction Bank said in its statement.
US$3.6 billion debt
relief for Wuhan Steel
China Construction Bank Corp said earlier that it plans to raise 24 billion yuan ($3.6 billion) with Wuhan Iron & Steel Group for a fund that will help lower the unprofitable Chinese steelmaker’s debt levels.
The two companies have already raised 12 billion yuan in the first stage of fundraising after reaching an agreement on Aug. 18, the Beijing-based lender said in a statement on its website. A representative for Wuhan Steel couldn’t immediately be reached for comment.
The fund, the first in China that’s aimed at relieving debt at state-owned enterprises, will invest in shares of Wuhan Steel’s units and take over some of the group’s maturing debt, the 21st Century Business Herald reported earlier, citing comments from Zhang Minghe, who leads Construction Bank’s debt-to-equity program.
Chinese policy makers are stepping up their fight against excessive leverage, with cabinet this week releasing guidelines for reducing corporate debt and for how banks may swap debt to equity. Corporate debt jumped to 165 percent of China’s gross domestic product in 2015 from 105 percent a decade ago, according to Bloomberg Intelligence.
The Wuhan Steel fund “looks like a debt-to-equity fund,” said Ma Kunpeng, a Shanghai-based analyst at China Merchants Securities Co. “The government is making a coordinated effort to tackle high corporate leverage. That means they are serious about it so I wouldn’t discount the potential effect of it.”
Wuhan Steel, China’s sixth-biggest steelmaker by output, is poised to be taken over by its bigger peer Baosteel Group Corp. in a government-led deal to create the world’s No. 2 producer. The tie-up will put Baosteel’s credit rating under pressure because of its target’s weaker financial position, Moody’s said Sept. 23.
Of the initial fundraising, Wuhan Steel contributed 2 billion yuan, while Construction Bank raised the rest from unidentified investors, according to the Business Herald. The total amount of 27 billion yuan that is being sought may help lower Wuhan Steel’s leverage ratio of 73.7 percent by 10 percentage points, the publication said.
Construction Bank said it has reached out to other highly indebted companies with growth prospects to help them lower leverage.