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[BEIJING] Bank of China and five other Chinese banks have signed a debt restructuring deal with troubled steelmaker Sinosteel, in what is among the first significant restructuring deals involving a state-owned enterprise.
In a statement on Friday, Bank of China outlined details of the agreement with Sinosteel, which could be the formula used for other major overhauls of struggling state-owned enterprises.
Sinosteel became one of the first state-owned firms to encounter bond repayment problems in 2015. The State Council approved the deal in September, according to an announcement by a Sinosteel unit at the time.
Debt has emerged as one of China's biggest challenges, with the country's total load rising to 250 per cent of GDP last year. Chinese companies sit on US$18 trillion in debt, equivalent to about 169 per cent of GDP, according to figures from the Bank for International Settlements. Most of it is held by state-owned firms.
Sinosteel's bailout will be divided into two parts, including a business rehabilitation plan and a debt restructuring plan, the bank said.
The first phase of the debt restructuring will be for more than 60 billion yuan (S$12.4 billion) of debt, including principal and interest. That debt will be divided into two parts. One part will be kept by financial creditors.
For the rest, Sinosteel will set up a stake holding vehicle to issue convertible debt to creditors to swap existing debt, and creditors will have the option to swap convertible debt into equity under certain conditions.