Seven departments, including the National Development and Reform Commission and the People's Bank of China, recently issued the Notice on Specific Policies of Converting Creditor's Rights into Equity in Market-oriented Banks. The circular made it clear that a comprehensive plan combining stocks and bonds is allowed to reduce the leverage ratio of enterprises. According to the target enterprise's goal of reducing the leverage ratio, all implementing agencies can design a comprehensive leverage reduction scheme combining stock and debt, and allow conditional and phased share conversion.
The notice pointed out that implementing agencies are allowed to initiate the establishment of private equity investment funds and carry out market-oriented debt-to-equity swaps; Standardize the implementing agencies to carry out market-oriented debt-to-equity swaps by issuing shares and repaying debts; Allow other types of creditor's rights except bank creditor's rights to be included in the scope of debt-to-equity swap; Allow executing agencies to accept all kinds of creditor's rights with different quality grades; Listed companies and unlisted public companies are allowed to issue equity financing instruments and implement market-oriented debt-to-equity swaps.
The notice stressed that the next step will be to implement the tax policy. Eligible market-oriented debt-to-equity swap enterprises can enjoy preferential tax policies related to enterprise restructuring according to regulations. After approval, it is allowed to determine the conversion price of state-owned listed companies with reference to the transaction price in the secondary market, and it is allowed to determine the conversion price of state-owned unlisted companies with reference to competitive market quotations or other fair prices.