SOEs strive for deleveraging, debt control

Firms expected to improve efficiency, optimize capital structure: official

China is stepping up efforts to push centrally administered State-owned enterprises (SOEs) to deleverage and cut debts, as part of the country's effort to carry out supply-side structural reform, a top official said on Thursday, while noting that the debt issue is under control.

The operating scale of centrally administered SOEs has grown relatively fast in recent years and a stable debt ratio has been maintained, said Shen Ying, a senior accountant with the State-owned Assets Supervision and Admission Commission (SASAC).

Shen told a press conference in Beijing that the debt ratio of centrally administered SOEs decreased by 0.2 percentage points by the end of September compared with early 2017.

Shen said that in 2009, China explored setting up a debt risk control system for SOEs involving controls on industrial standards and investment scale. Chinese authorities have also been studying measures to help SOEs reduce their leverage ratios, she said.

SOEs are expected to improve the efficiency of their utilization of resources through efforts such as accelerating capital turnover, according to the official.

"The key for SOEs in deleveraging is to improve their production quality and efficiency in order to gain more profits. Industrial integration and improvement of financial management will also play a vital role," Zeng Gang, director of banking research at the Institute of Finance and Banking under the Chinese Academy of Social Sciences, told the Global Times on Thursday.

The biggest challenge is to address problems related to zombie enterprises as it involves various important areas, such as employment and tax, Zeng said. This will require joint efforts from other authorities like justice departments, he noted.

Shen said that the relevant authorities are beefing up efforts to handle capacity reduction and the debts of zombie enterprises.

In the next step, the Chinese government is devoted to optimizing the capital structure of SOEs via increasing direct financing for the companies, said SASAC. Multi-channel equity financing will be conducted through mixed-ownership reform, bringing in investors and strengthening capital cooperation between domestic companies, SASAC said.

The debt-to-equity swap project should also be actively advanced, said Shen. A total of 36 centrally administered SOEs are carrying out the project, and 14 of them have signed debt-to-equity swap agreements, worth a total of 440 billion yuan ($67 billion), Shen said.

During the first three quarters, centrally administered SOEs reaped 19.1 trillion yuan in revenues and 1.11 trillion yuan in profits, up 15.4 percent and 18.4 percent on a yearly basis, respectively, the largest year-on-year growth since 2012, according to SASAC data.