China facilitates debt-for-equity swaps

BEIJING - China's industry and commerce watchdog on Wednesday released rules to help fund-strapped firms restructure debts and improve cash flow through debt-for-equity swaps.

The move is the government's latest effort to protect companies, especially small firms facing difficulty accessing bank loans, from being hurt by tightening monetary measures aimed at stemming inflation.

The rules, published by the State Administration for Industry and Commerce (SAIC) on its website, specify how companies should register changes in capital after creditors cancel their debts in exchange for equities in the firms.

Debt-for-equity swaps are legal in China but did not require registry before. The issuance of the rules is expected to provide better regulation and legal support for such practices.

The move "aims to help enterprises reduce their debt burdens and solve their funding problems," Zhou Bohua, head of the SAIC, told Xinhua.

"Some domestic companies, especially small and medium-sized enterprises, are facing difficulties in funding due to the global financial crisis," said Zhou.

While the role of debt-for-equity swaps should be given full play to support company restructuring and encourage social investment, the risks of such practices must be effectively contained, he noted.

With a tightening monetary policy and a slowdown in external demand, China's economy has slowed to its weakest pace in two years, a trend likely to continue.

To support ailing small businesses, the government has announced a series of measures including raising the threshold for corporate value-added taxes and sales taxes, reducing some other taxes and scrapping some administrative fees.