SHANGHAI, Oct 12 (Reuters) - China First Heavy Industries said on Wednesday it has received approval from the state asset regulator to pay off debts through private placements of shares, days after the country’s cabinet signed off on new guidelines to reduce a mountain of corporate debt.
The private placement of A-shares would raise a total of 1.55 billion yuan ($230.85 million) from its parent China First Heavy Industries (Group) Co Ltd, the company said in a filing with the Shanghai stock exchange.
The funds would be used to pay off capital shortfalls, including entrusted loans and other debts.
The private placement would be conducted through a form of debt-to-equity swaps, according to the Shanghai Securities News. The company did not mention debt-to-equity swaps in its filing.
First Heavy, which sells equipment and services to industries from steel to mining and electricity, said that the funds to be paid by the parent group were state funds.
China unveiled guidelines on Monday to reduce rising corporate debt levels, which some analysts fear could destabilise the world’s second-biggest economy.
The measures included encouraging mergers and acquisitions and debt-to-equity swaps.
Corporate China sits on $18 trillion in debt, equivalent to about 169 percent of gross domestic product (GDP), according to the most recent figures from the Bank for International Settlements. Most of it is held by state firms.
China experimented with debt-to-equity swaps in the late 1990s as part of sweeping reforms to the state sector that led to around 28 million layoffs over five years. But experts said the programme made state-owned firms less willing to find ways to pay back debts. ($1 = 6.7144 Chinese yuan) (Reporting By Winni Zhou and John Ruwitch; Editing by Kim Coghill)