12 Central Enterprises Signed Debt-to-Equity Swap Agreements with Banks
Central enterprises have presented brilliant performance in the first half of the year, hitting new highs in both revenues as well as profits. 12 central enterprises have signed framework agreement with banks on debt-to-equity swap, speeding up the restructuring and consolidation of these central enterprises. While trying to maintain growth, central enterprises are paying more attention to risks control as well as the quality and benefits of improvements.
Shen Ying, chief accountant of the State-owned Assets Supervision and Administration Commission (SASAC) indicted at the press conference of the State Council Information Office held on July 11 that SASAC is more concerned about whether advancing the restructuring can meet the expected results. If the restructuring of central enterprises is smooth and the results can meet expectations, these enterprises will play a better role in the future.
Central enterprises have initiated their key restructurings this year with China National Nuclear Corporation and China Nuclear E&C Group being the first to propose their strategic restructuring. Subsequently, Sinolight Corporation and China Poly Group have been rumoured to follow suit. The consolidation and restructuring of central enterprises have sped up since June.
Shen indicated that in the recent years, the consolidation and restructuring of central enterprises are mainly conducted in the following forms. Firstly, through associations between strong enterprises. Two enterprises with matching size in the same industry can reduce repeated investments and construction, and restructuring and consolidation resulted in a reduction of operation cost through. Secondly, consolidation through mergers. Thirdly, through restructuring of upper and down-streams of industrial chains. Industrial layout can be improved and market fluctuations will be prevented. For example, the restricting of raw materials and processing enterprises.
Shen also pointed out that restructuring of central enterprises is not a simple consolidation. There are still a lot of work to do after the restructuring. The coordination in the capital market will also be essential for groups with many listed companies.
The debt risks of central enterprises are of high concerns. SASAC’s statistics show that as at the end of 2016, the asset-liability ratio of central enterprises was 66.6 percent, which is 0.1 percentage points lower than 2015. As at the end of March 2017, the asset-liability ratio of central enterprises was 66.5 percent, 0.1 percentage points lower. Based on the statistics, the overall debt risks of central enterprises are within control. Hence, SASAC has been highlighting the swap of debts into equities many times.
“SASAC is always asserting the importance on risk prevention of central enterprises as risk prevention is of significance to stable economic growth. It controls liability ratio and liability scale of some enterprise with huge amount of liabilities through linkage of budget, assessment, wages and investment management.” Shen pointed out at the news conference. SASAC has done a lot in deleveraging, like driving enterprises to optimize their capital structure, encouraging them to finance from capital market via launching IPO and issuing stocks to improve capital structure, supporting them to conduct asset securitization business, and advancing them to collect development fund by vitalizing existing funds to reduce dependence on liability as much as possible.
Shen disclosed during the conference that 12 central enterprises have signed framework agreement on debt-to-equity swap. Some central enterprises such as China Baowu Steel Group Corporation and China First Heavy Industries have made positive achievements in such debt-to-equity swap program. Overall liability ratio of central enterprises keeps sable, debt structure is being optimized and solvency indicator is also improving.
In terms of de-capacity, Shen pointed out that the SASAC and central enterprises focus on the main topic of deepening supply-side structural reform, carry out key tasks of cutting overcapacity, destocking, deleveraging, lowering costs and improving weak links, accelerate structural adjustment, transformation and upgrading, and strengthen core competitiveness and ability of sustainable development.
Firstly, the implementation of tasks to cut overcapacity has been taken seriously. In the first half of the year, they totally reduced overcapacity of iron & steel industry by 5.95 million tons and have superseded the annual task. They cut overcapacity of coal industry by 6.59 million tons and restructured the capacity of coal industry by 13 million tons. Secondly, they conducted work on “zombie enterprises” and enterprises in dire straits. They put forth proposal on disposing “zombie enterprises” and governing subsidiaries in dire straits to ensure positive results. Thirdly, they move quicker in tackling historical questions. Separation and transfer of water, power and heat supply and property management have been completed by over 50 percent. Fourthly, they invest more in strategic emerging industry. They mainly made investment in strategic emerging industry, advanced manufacturing industry, modern tertiary industry, infrastructure and people’s livelihood guarantee field. Investment made in new energy, equipment manufacturing, scientific research and modern tertiary industry increased by 4.4 percentage points. There were more than 500 platforms for mass entrepreneurship and innovation as well as over 200 incubators and scientific industrial parks for mass entrepreneurship and innovation were established. They also initiated and joined in over 200 funds to lay good foundation for future development.