July 3, 2018

China Railway Group swaps out debt

China Railway Group has won CNY11.6 billion ($1.8 billion) of fresh funding by swapping debt into equity under a government-backed initiative to help state-owned companies cut debt.

According to a stock exchange filing, nine investors took part in the swap, with the new money going to four of subsidiaries to lower their debt levels, while also cutting the parent company’s stakes in the four.

China Railway is the latest state-owned enterprise to effect a debt-to-equity swap under a programme introduced in 2016 as authorities fretted over high debt levels at state firms.

China Railway is at the forefront of China’s push to build high-speed rail networks as part of Beijing’s ambitious global diplomatic efforts.

The company has worked on projects in Indonesia, Laos, Russia and Ethiopia, according to its website, but has also had some setbacks.

In 2016 private US firm XpressWest terminated a joint venture with China Railway to build a high-speed line between Las Vegas and Los Angeles, while a planned high-speed project in Venezuela failed the same year as the country’s economy collapsed.

According to the stock filing, the nine investors are China Great Wall, China Orient, China Cinda, Structural Reform Fund, Suida Investment, BOC Asset, ICBC Financial, Bocom Financial and China Reform.

The first three companies are among the top four bad-debt managers in China, and will together transfer CNY4.5 billion of debt into equity.

The other investors will pay cash in exchange for the debt.

Suida Investment is the only non-state-controlled company among the investors, but is not widely known.

The filing only notes that Suida Investment is a limited liability partnership engaged in industrial investment and investment management.

The four subsidiaries that will receive the funding are China Railway Erju Engineering, China Railway No 3 Engineering, China Railway No 5 Engineering and China Railway No 8 Engineering.

On completion of the deal, China Railway, listed in both Shanghai and Hong Kong, will see its stakes in the four subsidiaries decline from 100% each to 74.7%, 70.6%, 73.0% and 76.2% respectively.