China – Debt to Equity Swap

Now it is getting interesting in China.


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.


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.


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.


Full article from Reuters



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