China – Debt to Equity Swap

Now it is getting interesting in China.

image

This will not end well.

(Reuters) – China’s central bank is preparing regulations that would allow commercial lenders to swap non-performing loans of companies for stakes in those firms, two people with direct knowledge of the new policy told Reuters.

These new rules would reduce commercial banks’ non-performing loan (NPL) ratios – thereby freeing up cash for fresh lending for investment in a new wave of infrastructure products and factory upgrades – that the government ‘hopes’ will rejuvenate the world’s second-largest economy.

I read this and thought – you are kidding me – the measures proposed appear to be a reverse takeover by the PBOC of these indebted companies.

image

Have a lot of questions on this – but the trend is the trend in a financialization fueled expansion.

One cannot stop the trend.

My immediate questions are:-

How does one value these non performing loans?

Better still – how does one trust current management who created the problem in the first place?

Who is entitled to further loans and against what assets?

The debt laden companies and entrepreneurs must be celebrating – more money – more debt – against a backdrop of lower global trade.

Then again – they do have a growing problem with unemployed workers.

image

Not a good cocktail mix.

Hope…. and hope that those owners/managers that enter into these arrangements can get immunity from the State – throwing good money after bad in China is a criminal offense.

image

Full article from Reuters

http://mobile.reuters.com/article/idUSKCN0WC0MD

 

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s