Ex-Huarong head cautions on debt-equity swap

    YANG KAISHENG, who led China Huarong Asset Management Co. in conducting China’s first swaps of bad debt to equity in the late 1990s, has issued a warning on government plans to revive the exchanges, describing them as a “painful” process that should only be used when there is no other choice.

    The objectives of the conversions, currently being considered by authorities as a way to reduce corporate leverage and mounting bad loans at the nation’s banks, can be contradictory to each other, Yang wrote in an opinion piece published in the 21st Century Business Herald yesterday. While the swaps may lower bad loan ratios, lenders may need to set aside more capital to account for the resulting equity holdings, compromising their financial strength, said Yang, who is currently at adviser to the China Banking Regulatory Commission. Debtors give up their control of the company, while creditors lose their rights to debt claims and there’s no guarantee on the return of equity, he wrote.

    Firms scrap bond offerings as defaults rise

    CHINESE companies canceled more than double the amount of bond offerings in March compared with a year earlier, as mounting defaults increased financing costs.

    At least 62 firms postponed or scrapped 44.8 billion yuan (US$7 billion) in planned note sales last month, compared with 23 companies with 15.7 billion yuan a year ago. Dongbei Special Steel Group Co., the struggling unlisted steelmaker that defaulted on short term commercial paper in March, has missed a payment on a separate note. The payment on the 1 billion yuan, 6 percent coupon, 90-day note was due Tuesday. In March, the firm warned it might default on this short term commercial paper.

    Stocks down despite signs of economic recovery

    CHINA’S main share indices edged down yesterday but stayed close to their highest levels since early January as the latest survey on the country’s service sector activity provided fresh evidence of a nascent economic recovery.

    The blue-chip CSI300 index fell 0.2 percent to 3,257.53, while the Shanghai Composite Index lost 0.1 percent to 3,050.59 points, staying comfortably above 3,000 points --- a level many see as psychologically important. Activity in China’s service sector strengthened last month, according to the Caixin/Markit services purchasing managers’ index, which in March rose to 52.2 from February’s 51.2.