Five government agencies are urging insurers, private equity investment funds, foreign-funded institutions and other financial institutions to invest in debt-to-equity plans, as the authorities renew their efforts to ease pressure on companies struggling with debt.
A joint notice to this effect was issued on 19 November by the CBIRC, National Development and Reform Commission (NDRC), the People's Bank of China, the Ministry of Finance, and the China Securities Regulatory Commission.
The notice stipulates that qualified insurance groups, insurance companies and insurance asset management institutions are allowed to set up specialised units to engage in market-oriented debt-to-equity swaps. Insurance entities are allowed to form private equity funds to carry out such swaps.
Private equity fund managers are allowed to independently carry out or jointly develop market-oriented debt-to-equity swap projects with other institutions.
The notice says that the Chinese authorities support foreign investors in setting up private equity investment funds to undertake debt-to-equity business, and they will allow foreign capital to invest in financial asset investment companies and conduct debt-to-equity swaps.
At the same time, the authorities also encourage banks, trust companies, securities companies, fund management companies, etc, to issue asset management products to participate in debt-to-equity swaps. However, unless otherwise stipulated by laws and regulations, these products are barred from investing in the equity of non-listed companies.
The main financial institutions involved in the debt-to-equity plans so far are the four major asset management companies (AMCs) of large state-owned banks. Currently, when other banks want to participate in the plans, they usually cooperate with the AMCs.
However, in order to allow more banks to directly participate in the plans, the authorities reaffirm that they will allow eligible commercial banks to establish financial asset investment companies, either as wholly owned or joint ventures.
The debt-to-equity swap programme was initiated by Premier Li Keqiang in 2016 to help deleverage the corporate sector and alleviate debt-servicing burdens.
As of the end of June, 109 Chinese companies signed agreements on debt-for-equity swaps worth more than CNY1.7trn ($245bn). But only around 20%, or CNY346.9bn of the deals were implemented, reports Caixin citing data from the NDRC.
Among insurers, China Life Insurance Group is so far the only insurer that has participated in debt-for-equity deals, reflecting the lack of enthusiasm among insurance companies for the plans because of uncertainties about investment returns.
One insurance asset manager told Caixin that with insurance capital exposed to equity investment risks, insurers will be very cautious.