Bad Debt To Equity Swap Is Highly Standardized.

China's relevant departments are drafting documents and will allow

The bad loans of enterprises are replaced by equity.

For this, we commented as follows:

1) the core point: according to Reuters, the relevant departments of the Central Bank of China have been drafting relevant bank debt to equity swap documents, which will allow commercial banks to replace the non-performing loans of enterprises into equity. The documents will be specially approved by the State Council to circumvent the restrictions on commercial banks' ownership of banks.

Recently, Rongsheng Heavy Industries (now Huarong energy) issued a notice of debt to equity swap.

Highly non standardized, it is difficult to spread out widely.

The impact is limited; it can alleviate the debt pressure of the enterprises involved, facilitate their improvement in operation, and make good opportunities for enterprises and structural opportunities.

2) rumors are more likely to be true.

Rongsheng Heavy Industries (now renamed Huarong energy) has issued a notice of debt to equity swap, which is expected to issue up to 17 billion 100 million stocks to creditors to offset 17 billion 100 million yuan debt (of which 2 billion 750 million shares are issued to the Bank of China to offset 2 billion 750 million yuan debt).

After the completion of the debt equity swap, Bank of China will become its largest shareholder with a shareholding ratio of up to 14%.

The bill is yet to be approved by the shareholders' meeting in March 24th.

3) bad debt to equity swap is difficult to spread widely and has limited impact on market trends.

Bad debt to equity swap will solve the problem in a new way, which will help reduce the bank's bad rate and corporate debt ratio and slow down systemic risk in the short term.

However, debt to equity swap is one of the ways of debt restructuring. It is necessary for creditors, debtors and stakeholders to carry out negotiations on a non standardized basis.

In the long run, the simple reform of debt restructuring will actually delay the old growth mode and encourage and increase leverage, which will make the future problems even more serious. The better market trend depends on the reform and tackling difficulties to improve China's economic fundamentals.

4) pay attention to the structural opportunities provided by bad debt to equity swap.

Bad debt to equity swap can reduce the bad accounting rate of the banks concerned, but it will increase the capital occupation of the banks and influence the banks in a neutral way. It can alleviate the debt pressure of the enterprises involved, facilitate their improvement in operation and benefit the enterprises.

Bad debt to equity swap provides structural opportunities for the market, focusing on those companies that are temporarily struggling with difficulties in their business, but with long term development prospects.