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1st Ld-Writethru: China details plan for debt-for-equity swaps

Xinhua, October 10, 2016 Adjust font size:

China's State Council on Monday released a guideline on the long-discussed debt-for-equity swaps, pledging the scheme will be conducted in an "orderly" fashion as the country steps up efforts to tackle high corporate debt.

Companies with "temporary difficulties" but "long-term potential" will be able to exchange their debt for stocks, according to the guideline.

Poorly performing "zombie enterprises" and those with bad credit records will be forbidden from participating, according to the State Council.

The plan prevents banks from directly swapping non-performing loans, with conversions to be handled by asset management institutions and state investment firms.

But at a press conference on the issue on Monday, Wang Zhaoxing, vice chairman of the China Banking Regulatory Commission, said Chinese banks could apply to establish new qualified institutions to conduct swaps.

High corporate leverage in China has become a major threat to financial stability in recent years, especially as China's growth has faced persistent pressure.

Debt-for-equity swaps are generally believed to benefit both banks and struggling companies. They reduce the pressure on companies and free up bank balance sheets, releasing capital for investment. Endi