Troubled Sinosteel becomes first central government-owned company to strike debt-to-equity swap deal
The state-owned steelmaker has signed agreements with six Chinese banks to restructure 60 billion yuan of debt
China’s troubled state-owned steelmaker Sinosteel has agreed terms for its debt-for-equity swap plan after two years of negotiations, marking the first such restructuring deal involving a central government-owned enterprise.
Sinosteel has signed agreements with six Chinese state-owned banks including Bank of China and Bank of Communications in regards to restructuring debt through a debt-for-equity swap, according to a statement released by the Bank of China on its website on Friday.
We still need more details about the deal to tell if banks, the debt holders, are suffering losses in the plan
The plan will involve more than 60 billion yuan (US$8.70 billion) of debt, including principal and interest, which will be divided into two parts. One part will be kept by financial creditors, while for the rest, Sinosteel will set up a stake-holding vehicle to issue convertible debt to creditors in exchange for existing debt. Creditors will then have the option to swap the convertible debt into equity under certain conditions.
“We still need more details about the deal to tell if banks, the debt holders, are suffering losses in the plan,” said Liao Qiang, senior director of financial institutions ratings at Standard & Poor’s in Beijing.
Many analysts, including Liao, believe that the swap plan in the Sinosteel case came with government support.
“We still don’t know if Sinosteel has a feasible plan to improve its profiting capability, which is the key for debt-for-equity swap to work,” said another analyst on China’s corporate debts, who asked not to be named. “If they don’t, the plan only puts off the debt problem instead of solving it.”
