State Council, Guiding Opinions for the Market-oriented Conversion of Bank Claims to Equity

Various types of implementing institutions, such as financial asset management companies, insurance asset management institutions, and investment and operating companies with state-owned capital are encouraged to participate in market-oriented debt-for-equity swaps. Banks are supported in fully using existing qualified subordinate institutions or are permitted to apply to establish new institutions complying with provisions to engage in market-oriented debt-for-equity swaps. Implementing institutions are encouraged to bring in private-sector capital to develop the mixed ownership model.

Banks are encouraged to transfer claims to implementing institutions not belonging to it to carry out conversion to equity, and different banks are supported in cross implementation of market-oriented debt-for-equity swaps through their implementing institutions (Article 3(2)).

Banks, enterprises and implementing institutions shall determine claim transfer and equity conversion prices and conditions through negotiations conducted at their own initiative.

With approval, determination of the equity conversion price of state-owned listed companies by reference to the transaction price for the stock on the secondary market and of the state-owned unlisted company equity conversion price by reference to competitive market quotes or other fair price is permitted.

The preference share offering policy will be improved, the conversion of claims into preference shares through negotiations and by the statutory procedure is permitted and the rights and interests of holders of preference shares shall be rationally determined in accordance with the law (Article 3(3)).

Issued: September 22 2016

Main contents: The government will not compel enterprises, banks and other institutions to participate in debt-for-equity swaps. The government shall not bear ultimate liability for losses (Article 2).

The scope of claims converted to equity shall chiefly be the claims arising from the extension of loans to enterprises by banks, and suitable consideration shall be given to other types of claims (Article 3(1)).

Unless otherwise provided by the state, a bank may not directly convert its claims into equity. A bank wishing to convert a claim to equity shall realize the same by transferring the claim to an implementing institution, which shall then convert the same into equity of the target enterprise.

Various types of implementing institutions, such as financial asset management companies, insurance asset management institutions, and investment and operating companies with state-owned capital are encouraged to participate in market-oriented debt-for-equity swaps. Banks are supported in fully using existing qualified subordinate institutions or are permitted to apply to establish new institutions complying with provisions to engage in market-oriented debt-for-equity swaps. Implementing institutions are encouraged to bring in private-sector capital to develop the mixed ownership model.

Banks are encouraged to transfer claims to implementing institutions not belonging to it to carry out conversion to equity, and different banks are supported in cross implementation of market-oriented debt-for-equity swaps through their implementing institutions (Article 3(2)).

Banks, enterprises and implementing institutions shall determine claim transfer and equity conversion prices and conditions through negotiations conducted at their own initiative.

With approval, determination of the equity conversion price of state-owned listed companies by reference to the transaction price for the stock on the secondary market and of the state-owned unlisted company equity conversion price by reference to competitive market quotes or other fair price is permitted.

The preference share offering policy will be improved, the conversion of claims into preference shares through negotiations and by the statutory procedure is permitted and the rights and interests of holders of preference shares shall be rationally determined in accordance with the law (Article 3(3)).