September 13, 2018 / 12:29 PM / 2 months ago

UPDATE 1-China's cabinet tells state firms to debt levels

* China pledges sound policy environment to help firms cut debt

* To push forward state firm restructuring, let some go bankrupt

* To allow highly indebted state firms to expand equity financing (Adds details, quotes)

BEIJING, Sept 13 (Reuters) - China aims for a cut of 2 percentage points in the average ratio of liabilities to assets held by its state-owned enterprises (SOEs) by 2020 from 2017, state news agency Xinhua on Thursday quoted the cabinet as saying.

Beijing has made reining in corporate debt a key goal this year, while also trying to push forward reform of powerful state-owned firms. Most Chinese corporate debt is held by state firms, and recent data shows some progress has been made.

The government will create a sound policy environment to help the firms cut debt, it added, quoting guidelines issued by the cabinet, or State Council.

“Strengthening asset-liability constraints of state-owned enterprises is an important measure to prevent and resolve major risks,” Xinhua said.

The government will push forward mergers and restructuring of state firms, allowing “zombie firms” and highly indebted local government financing vehicles to go bankrupt, according to the guidelines.

China’s highly indebted state firms should cut the ratios of their liabilities to assets to a reasonable level as soon as possible, Xinhua said.

China will steadily push forward market-based debt-to-equity swaps and debt restructuring, and will allow highly indebted state firms to raise capital and expand equity financing, it added.

It will also drive mixed-ownership reforms for state firms to attract private investment, Xinhua said.

Financial institutions cannot make new loans to state firms being closely monitored for debt risks, and local governments will be barred from raising hidden debt in the name of corporate debts, Xinhua said, citing the cabinet. (Reporting by China monitoring desk and Kevin Yao; Editing by Clarence Fernandez)

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