SINOSTEEL, the troubled steelmaker which became one of the first State-owned firms in China to encounter bond repayment problems in 2015, is in the final stages of completing a debt-to-equity swap plan, online financial magazine Caixin reported Tuesday.

    The plan has been submitted to the State Council, China’s Cabinet, for approval and will soon begin in earnest, Caixin said, citing anonymous industry sources.

    Sinosteel may be allowed to swap half of its debt into equity, Caixin added. The magazine estimates Sinosteel and its subsidiaries had 100 billion yuan (US$15 billion) in debt at end-2014.

    In October 2015, Sinosteel asked bondholders not to exercise an early redemption option on one of its bonds maturing in 2017 as the firm would not be able to make full payment.

    The firm has repeatedly extended the registration period for bondholders to apply for early redemption and offered shares in its listed subsidiary Sinosteel Engineering & Technology Co. as additional collateral.

    In March, Reuters reported that Chinese policymakers were planning a debt-to-equity swap plan which would convert some nonperforming bank debt into equity, a plan which was later confirmed by regulators.

    Debt-to-equity swaps are just one of several options proposed by policymakers to help clean up China’s bad debt problem.

    On Tuesday, China Securities Journal reported that issuance of securities backed by bad debt, another partial solution mooted by regulators, could be more than 7 billion yuan in the second half of 2016. Although debt-to-equity swaps would relieve pressure on borrowers, banks and other creditors have been lukewarm on the idea at best.

    Swapping debt into equity in a troubled borrower might get bad loans off banks’ books, but China Construction Bank chairman Wang Hongzhang warned earlier this year there was a danger of simply converting “bad debt into bad equity.” (SD-Agencies)