China Construction Bank Corp. said it had approached more than 50 companies that could convert debt to equity as part of the nation’s efforts to tame an explosion in corporate leverage that poses risks for financial stability.
The bank assessed the firms’ debt levels, industry indicators, and the strength of their relationships with Construction Bank, said Zhang Minghe, who is leading the bank’s swap program, called “Spring Rain.” Zhang said at a briefing in Beijing on Tuesday that the companies include state-owned enterprises and private firms in industries from steel to coal.
The banker was commenting after Construction Bank in the past week announced deals with Wuhan Iron Steel Group and Yunnan Tin Group, worth more than 34 billion Yuan (£4.07billion) and aimed at cutting leverage. Zhang said that the approach laid out by the government for the debt-to-equity initiative had avoided what bankers would be “most scared of”, deals where the state was matchmaker.
Zhang said it was difficult to forecast how big the program would get, because it was market-oriented, rather than being subject to a government quota.
In the Yunnan Tin deal, a Construction Bank unit is raising money from investors to buy 10 billion Yuan of loans extended by other lenders, according to the bank. None of the debt is non-performing.