Chinese zombie firms not to qualify for debt-for-equity

China's undead army of zombie corporations will not qualify for debt-for-equity swaps, the government said, as Beijing tries to curb the risks of ballooning corporate debt.
New guidelines posted on the website of the State Council, China's cabinet, sought to offer some clarity to long-discussed but hazy plans to reduce debt by letting lenders swap bad loans for shares in some debtor companies.
The policy will offer debt-to-equity swaps with market-determined values to help "high-quality" firms with long-term growth prospects overcome "temporary setbacks", said the document, while barring "zombie companies" and those with poor credit ratings.
It called for mergers and acquisitions of debt-choked companies to improve competitiveness and reduce leverage.
China's Communist authorities have repeatedly pledged to give market forces a greater role in the world's second-largest economy, where growth is slowing and lumbering industrial firms, many of them state-owned, remain a drag.
The guidelines, posted Monday, came as analysts have sounded alarm bells over risks of a blowout in the economy, with total debt surging 465 percent over the past decade, and corporate debt leaping to 165 percent of GDP in 2015, according to Bloomberg News.
If corporate borrowing growth does not slow, the ratio of sour loans could triple to 17 percent by 2020, S&P Global Ratings said in a report Tuesday, adding: "We believe that the current growth rate of China's debt is not sustainable for long."
Economists have warned that the ballooning borrowing risks sparking a financial crisis as bad loans and bond defaults increase.
On Monday bankruptcy proceedings for the massive state-owned Dongbei Special Steel Group were approved, according to the official Xinhua news agency.
The 111-year-old company had defaulted on debt payments nine times in a row and now owed several billion yuan, it added.

Chinese zombie firms not to qualify for debt-for-equity

Chinas undead army of zombie corporations will not qualify for debt-for-equity swaps, the governmentsaid, as Beijing tries to curb the risks of ballooningcorporate debt. New guidelines posted on the website of the State Council, Chinas cabinet, sought to offer some clarity to long-discussed but hazy plans to reduce debt by letting lenders swap bad loans for shares in some debtor companies. The policy will offerdebt-to-equity swaps with market-determined values to help high-qualityfirms with long-termgrowth prospects overcome temporary setbacks, said the document, while barring zombie companies and those with poor credit ratings. It called for mergers and acquisitions of debt-choked companies to improve competitiveness and reduce leverage. Chinas Communist authorities have repeatedly pledged to give market forces a greater role in the worlds second-largest economy, where growth is slowing and lumbering industrial firms, many of them state-owned, remain a drag. The guidelines, posted Monday, came as analysts have sounded alarm bells over risks of a blowout in the economy, with total debt surging 465 percent over the past decade, and corporate debt leaping to 165 percent of GDP in 2015, according to Bloomberg News. If corporate borrowing growth does not slow, the ratio of sour loans could triple to 17 percent by 2020, SP Global Ratings said in a report Tuesday, adding: We believe that the current growth rate of Chinas debt is not sustainable for long. Economists have warned that the ballooning borrowing risks sparking a financial crisis as bad loans and bond defaults increase. On Monday bankruptcy proceedings for the massive state-owned Dongbei Special Steel Group were approved, according to the official Xinhua news agency. The 111-year-old company had defaulted on debt payments nine times in a row and now owed several billion yuan, it added.