It was not a good omen. In March, Chinese premier Li Keqiang confirmed that his government would authorise debt-for-equity swaps to reduce corporate indebtedness. A few weeks later, Huarong Energy announced that a dozen banks had agreed to swap loans totalling Rmb12.9bn ($1.9bn) for shares in the distressed shipbuilder-turned-oil exploration company.
To many analysts, that debt-for-equity swap outlined by Huarong in a statement to the Hong Kong stock exchange seemed like a pointless exercise in delaying the inevitable. Surely it was better for banks to cut their losses rather than help a zombie shipbuilder reincarnate itself as a Central Asian petroleum play by acquiring oilfields in Kyrgyzstan’s Fergana valley.
Six months later, two state-owned enterprises have unveiled the first state council sanctioned debt-for-equity swaps: Yunnan Tin Group and Wuhan Iron & Steel (Wisco). But neither Yunnan Tin nor Wisco’s swaps bear much resemblance to that outlined by Huarong in its transaction, which is still pending.