China to start debt-to-equity swap trials

The government has signaled that it is pushing forward with a program to allow debt-to-equity swaps as part of a strategy to deal with trillions of yuan of corporate loans at risk of turning sour. Caixin reports the State Council, China’s cabinet, released a policy which says financial institutions will be allowed to hold equity in enterprises on a trial basis. The announcement didn’t give a timetable, but experts say it marks the official launch of pilot programs that will finally allow banks to exchange overdue loans for equity in the companies who owe the money. The scheme is seen as a win-win by the government – it will rein in banks’ bad debts and non-performing loan ratios, while lowering companies’ leverage ratios and easing their debt repayment burden.