China Construction Bank in landmark debt deal with Yunnan Tin
First debt-to-equity swap between a Chinese bank and a local government-owned enterprise is worth US$1.5 billion
China Construction Bank Corp (CCB), the country’s second-biggest lender, has signed a debt-to-equity swap with Yunnan Tin Group Co, in a landmark deal in the government’s push to cut mounting corporate debt.
CCB on Sunday agreed to make a 5 billion yuan (US$750 million) initial investment in Yunnan Tin, as part of a 10 billion yuan deal aimed at lowering the leverage of the world’s biggest tin producer and exporter by 15 percentage points.
The deal marks the first debt-to-equity swap between a Chinese bank and a local government-owned enterprise, CCB said.
It comes after policymakers on Monday unveiled a multipronged plan — led in part by debt-to-equity swaps — to reduce China’s US$18 trillion in corporate debt, which was equivalent to about 169% of gross domestic product.
“This is our way to get rid of current cyclical difficulties and problems,” Yunnan Tin chairman Zhang Tao told reporters.
Yunnan Tin booked a total loss of more than 6 billion yuan over the past 3 years, said Zhang Minghe, who leads CCB’s debt-to-equity swaps work team.
“It [Yunnan Tin] is the leader of the tin industry in China and even in the world. It’s a national industry brand. It’s our pride. It’s a major battlefield for tin and other strategically important metal industries,” the chairman added.
“CCB, as a state bank, has a responsibility to support Yunnan Tin”
Under the plan signed on Sunday, CCB will raise money from various sources to fund the debt swap deal, said Zhang.
The money will be raised from institutional investors, such as insurance asset management companies, pension funds and the National Social Security fund, along with securities firms, and qualified individual investors through wealth management products.
“CCB, as a state bank, has a responsibility to support Yunnan Tin.”
The tenure of those investment products will be around five years, he added.
“CCB, as a state bank, has a responsibility to support Yunnan Tin,” Zhang said.
Luo Zhaobin, head of Yunnan SASAC — the state supervisor and shareholder in Yunnan provincial government-owned enterprises — called the deal “a milestone” since Beijing launched its nationwide campaign to reduce ballooning corporate debt.
Yunnan Tin, which controls more than 18% of the global tin products market and more than 45% of the Chinese market, became financially stressed after diverging away from its core business to invest in unfamiliar areas, such as real estate, in the past years, its chairman said.
The volatile nonferrous metal market since 2012 also pushed up Yunnan Tin’s funding costs, he said.