Indebted Chinese firms issue stock to pay loans

Hong Kong

A NEW approach to managing China's corporate debt burden may offer temporary relief for banks but spell further difficulties for the country's economy: having deeply troubled companies use stock to pay overdue loans.

Early evidence of the strategy emerged late on Thursday, when a heavily indebted Chinese shipbuilder disclosed that it would issue equity to its creditors, instead of repaying US$2.17 billion in bank loans.

If Chinese companies were to broadly adopt the …