CHINA Construction Bank Corp. (CCB) will establish a 24 billion yuan (US$3.60 billion) transformation and development fund with Wuhan Iron and Steel Group Corp. (Wuhan Steel) to help the steel firm reduce leverage, the bank said. The funding program, which the bank said was the first of its kind that it was participating in with a Central Government administered enterprise, has already received its first injection of 12 billion yuan, according to the statement. Although the statement released Tuesday did not explicitly mention debt-to-equity swaps, a separate article published yesterday by China Daily said the reduction in leverage would be accomplished mainly through such swaps. On Monday evening, the State Council, China’s Cabinet, released long-awaited guidelines for debt-to-equity swaps, mooted as one solution to China’s enormous corporate debt overhang. Corporate China sits on US$18 trillion in debt, equivalent to about 169 percent of gross domestic product (GDP), according to the most recent figures from the Bank for International Settlements. In a news briefing, a high-level official warned the swaps are not a “free lunch” for troubled companies, adding that loss-making “zombie” firms are strictly forbidden from such exchanges, which will be used mainly to help high-quality firms that face temporary difficulties. International institutions have warned China to stop financing weak firms, especially inefficient State-owned enterprises, which tend to crowd out the private sector. The government will take a multi-pronged approach to cutting company debt, including encouraging mergers and acquisitions, bankruptcies, debt-to-equity swaps and debt securitization, according to the guidelines. The debt-to-assets ratio of Wuhan Iron and Steel reached 76 percent at the end of 2015, according to China Daily. The paper said China Construction Bank is aiming to help lower that ratio to about 65 percent, citing comments by Zhang Minghe, head of China Construction Bank’s debt-to-equity swap program. (SD-Agencies) | 