Shares in steel and coal companies are among the top performers in Shanghai today amid reports the nation’s banking regulator is considering allowing debt for equity swaps for both industries.
The China Banking and Regulatory Commission has sent a proposal to local banks and financial institutions for a coal and steel debt-to-equity programme, Caixin reported at the weekend.
Included were a series of conditions that the companies have to meet in order to be eligible for the program. However, it remains unclear how companies will be evaluated to ensure that they meet the requirements.
Coal and steel companies have been hit by a multi-year slump in prices, and there is some concern that although debt-to-equity swaps would prop up those businesses, they could also allow the continuation of fiscal irresponsibility in the sector and slow down reform.
Among stocks that were higher by (or close to) their daily trading limit of 10 per cent on the Shanghai Composite today were: Shaanxi Heimao Coking, Shanxi Coking, Datong Coal Industry, Shanxi Lu’an Environmental Energy Development and Yanzhou Coal Mining.
There was also improved sentiment amid news that seven province-owned coal miners in Shanxi would be allowed to extend the maturities on some existing debt.
A debt-to-equity swap for coal and steel names could prove contentious in the wake of Dongbei Special Steel, which defaulted seven times on principal and interest payments, but in July proposed swapping 70 per cent of its outstanding debt for equity – violating a pledge made in May to not pursue such a course of action. That pitted creditors and investors against the Chinese government, which is keen to keep these companies operating.
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