TARGETED efforts by China to shore up the finances of cash-squeezed companies took a fresh turn this week, with the nation’s biggest bank throwing a lifeline to a clutch of private firms.

Industrial & Commercial Bank of China Ltd. (ICBC), the nation’s largest lender by assets, has expanded a debt-to-equity swap program in wake of a record run of defaults.

Shandong Chenming Paper Holdings Ltd. and Eternal Asia Supply Chain Management Ltd. each signed 3 billion yuan (US$433 million) in such deals with ICBC. Guangdong Liantai Group also inked a similar deal.

Signs of more government support have emerged recently amid the destabilizing impact from defaults and the equity market slump. The central bank most recently cut required reserve ratio for some banks by 1 percentage point, effective from Oct. 15, following a series of measures since July to support the economy.

“ICBC’s move can be seen as answering regulators’ call to help private sector firms refinance debts and avoid systemic risks, particularly when defaults are mounting,” said Richard Zhang, Shanghai-based corporate restructuring partner at global auditing firm EY. “If banks all withdraw credit lines, most of these firms will not survive.”

ICBC has signed agreements with 23 private sector companies to provide them greater financial support, Xinhua reported Oct. 16. It also said that ICBC agreed to swap debt into equity for Kangmei Industry Investment Holdings, the parent of embattled Kangmei Pharmaceutical Co. whose shares and bonds plunged Wednesday.

“Given the high leverage and considerable credit risks in the private sector, debt-equity swaps can help ease their pressure on debt repayment, contributing to the deleveraging in of the real economy,” said Li Qilin, chief economist at Lianxun Securities Co. (SD-Agencies)