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439 soes turned around and became profitable in

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Unformatted text preview: ebt/asset ratio of these SOEs was lowered to 45.6%. Their total annual interest payments were reduced by RMB 45 billion. 439 SOEs turned around and became profitable in 200033. Table 6: Progress of Debt-equity Swap in 2000 AMC SOEs Selected D/E Swap Completed Huarong 333 161 Cinda 190 96 Orient 63 26 Great Wall 24 12 Total 601 306 Source: China Financial Report 2001-2002, 02/2002 Completion % 48% 51% 41% 50% 49% As the new equity holders of these SOEs, the AMCs are expected to act as turnaround managers. Dr. Yang Kai-sheng, President of Huarong, said in a public speech: "our market priority is to work closely with original contributors to promote merges and restructuring between those enterprises while alleviate their debt burden and transform their mechanism, so as to exit smoothly."34 The interviews with AMC personnel, however, reveal a different perspective towards this issue. They called the debt-equity swap "an imposed and unwanted obligation to the AMCs from the government". They asserted that the AMCs were stuck in an awkward situation. First, it is hard to manage these SOEs owing to the shortage of human resources and necessary skills at the AMCs and the extensive geographic distribution of these SOEs. Second, the chances of receiving dividend distributions from these SOEs are remote. Third, since the capital market is "Asset Management Companies, A Tough Job Ahead", p.2, Deutsche Bank Asia Equity Research Almanac of China's Finance and Banking 2001, p.49, 11/2001, China Publishing House for Almanac of China's Finance and Banking 3 Yang Kai-seng, Economic Environment and Strategic Preference of China's NPL Disposition, China Huarong Asset Management Corporation 32 33 under-developed, it will be difficult for the AMCs to sell their equity holdings in the private placement market. The two exit strategies for the AMCs are either to sell the equities back to the SOEs or to help these SOEs go public and then unload these equities in the stock market in the future. Mr. Guo, a restructuring spet from Cinda, revealed that the Ministry of Finance recently announced a new policy that the AMCs would be allowed to sell the equities acquired through the debt-equity swap transactions to the public at a discount. The discount sale might be subject to approval from the State Council. However, the new policy would be a scheme to make it easier for the AMCs to sell the equities back to the SOEs. Since the AMCs have no intention to keep the equities, the discount sale will be a convenient short cut for them to exit. If this is the case, one of the goals of using debt-equity swap, to diversify the ownerships of SOEs and establish the modem corporate structures could never be accomplished. The Article 10 of the Regulations on Financial Asset Management Companies specifies that the AMCs can undertake the function of "listing sponsorship and bond/stock underwriting for companies within the scope of asset management" (A...
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