On December 12, Launching Ceremony of Yuexiu Group and Industrial and Commercial Bank of China (ICBC) Debt to Preferred Stock Project was held in Guangzhou International Financial Center (IFC). Hu Hao, Vice President of ICBC head office, Xing Xiang, Deputy Secretary General of Guangzhou Municipal People's government, Chen Haodian, Director of Guangzhou State-owned Assets Supervision and Administration Commission (Guangzhou SASAC), Chen Ping, Deputy Inspector of Guangzhou Local Financial Supervision and Administration Bureau, Zhang Zhenghua, President of ICBC Financial Assets Investment Co., Ltd., Zhang Zhaoxing, Chairman of Board of Directors of Yuexiu Group, and other officials and guests attended the ceremony. This not only marks the official implementation of Yuexiu Group's RMB 10 billion debt-to-preferred-stock plan, but also the first approved non-listed non-public joint stock company debt-to-preferred-stock project in China, which will become a vivid model of China's capital market and state-owned enterprise reform, so as to promote the development of the group's main business to achieve complementary resources and advantages. More than 150 leaders from Guangzhou Development and Reform Commission, Guangzhou Finance Bureau, Guangzhou Market Supervision Bureau, Guangzhou Local Financial Supervision Bureau, ICBC and members of Yuexiu Group leadership team attended the ceremony.
The issuance scale of Yuexiu Group's debt to preferred stock was RMB 10 billion. ICBC Investment, a subsidiary of ICBC, invested in subscription of Yuexiu Group's preferred stock by self-operating funds and organizing and initiating the establishment of Yuexiu Group's debt-to-preferred-stock SPV to raise funds from social qualified institutional investors (no more than 200 people). This is the largest market-oriented debt to equity project of ICBC so far.
On January 6, 2017, with the consent of Guangzhou SASAC, Yuexiu Group signed a strategic cooperation framework agreement with Industrial and Commercial Bank of China, clarifying the cooperation intention of carrying out market-oriented debt to equity swap. Since then, Yuexiu Group has been working with ICBC's debt-to-equity implementation agency ICBC Investment on the implementation plan. In June 2017, the overall work plan of market-oriented debt to equity swap was determined and approved by Guangzhou SASAC. In order to meet the preconditions of debt to preferred stock, Yuexiu Group started the stock system reform.
In November 2018, Yuexiu group's debt-to-preferred-stock plan was jointly approved by six ministries and commissions including National Development and Reform Commission, People's Bank of China, Ministry of Finance, State-owned Assets Supervision and Administration Commission of the State Council and China Banking and Insurance Regulatory Commission, becoming the first "double non" enterprise (non-listed, non-public stock company) got approval to carry out debt to preferred stock.
In June 2019, Yuexiu Group's shareholding system transformation was approved by Guangzhou SASAC. In October, Yuexiu Group's request to change its company property to a holding company in business registration has been approved by Guangzhou Market Supervision Bureau.
Based on different leaders, debt-to-equity model can be divided into policy-oriented debt-to-equity and market-oriented debt-to-equity. In 1999, the debt to equity swap implemented under the guidance of the government in China was the policy-oriented debt to equity swap, including the establishment of asset management companies and other institutions funded by government finance. Yet, the swap object of market-oriented debt-to-equity is chosen by the enterprises in the market, the assets of the swap are priced in the market, the capital is raised in the market, and the equity is managed and withdrawn in the market, from which all parties would be benefited.
From the perspective of banks, market-oriented debt to equity swap provides a new channel for bank asset management, increases the equity investment experience of the implementation banks, and provides opportunities for them to transform from traditional banks to integrated banks. The market-oriented debt to equity swap will further expand the diversified business layout of banks in the financial field and help banks ease credit risks. Therefore, after the introduction of relevant national policies, the four major banks (ICBC, ABC, BOC, CCB) have invested RMB 10 billion to establish asset management subsidiaries, making positive responses to the market-oriented debt to equity swap. At the ceremony, Zhang Zhenghua, President of ICBC Investment, pointed out that "the market-oriented debt to equity swap is an important measure to implement the supply side structural reform and promote the 'three elimination, one reduction and one complement'. At present, the amount of ICBC Investment in debt-to-equity swaps has exceeded RMB 180 billion, ranking first in the industry. The implementation of this project will help Yuexiu Group optimize its financial structure, enhance its capital strength, further strengthen its brand reputation in the capital market, deepen the strategic relationship between banks and enterprises, and become a model of "mixed reform" of leading local state-owned enterprises."
From the perspective of enterprises, debt-to-equity swaps not only prevent and control financial risks and improve the asset-liability ratio, but also contribute to the long-term development of the company. Yuexiu Group this debt-to-preferred-stock operation will bring positive financial and strategic impact to the group. The preferred shares will be credited to the owners' equity as an equity instrument, the data show. With the injection of RMB 10 billion of equity capital, it will greatly improve the financial structure of Yuexiu Group, supplement capital strength. With RMB 10 billion of preferred-stock, Yuexiu Group is expected to significantly reduce the asset-liability ratio.
"Guangzhou SASAC actively responds to national policies, steadily promotes market-oriented and law-based debt-to-equity swaps, and selects powerful enterprises and banks as the pilot demonstration sites for debt-to-preferred-stock swaps. The successful implementation of Yuexiu Group's market-oriented debt-to-preferred-stock swap is a major measure to implement the state's requirements for deepening the reform of state-owned assets and enterprises, and a concrete manifestation of financial enterprises' support for the reduction of leverage in the real economy. Market-oriented debt-to-equity swaps are conducive to further deepening the reform of state-owned enterprises, maintaining and increasing the value of state-owned assets, and improving the overall competitiveness of the state-owned economy. It plays a positive role in amplifying the functions of state capital. It is an important combination of achieving steady growth, promoting reform, adjusting the structure and preventing risks." Chen Haotian, Director of Guangzhou SASAC said, "Next, Guangzhou SASAC will further increase Guangzhou market debt-to-preferred-stock work's innovation, promote the overall pattern of Guangzhou state-owned assets, to speed up the formation of Guangzhou state-owned assets and enterprises' reform with new experience, new samples and new model, a new kinetic energy and empower Guangzhou's "four making new advances and new brilliants" and bring new vitality to the old city."
This debt-to-preferred-stock swap project is based on the reform policy of state-owned enterprises and achieves "incremental" and "marketization" in an innovative way. This move will not only improve the corporate governance mechanism of Yuexiu Group, further improve the operating efficiency of the enterprise, and strengthen the modern enterprise system, but also become an important example of local governments' support for deepening the reform of state-owned enterprises and financial enterprises' support for reducing leverage in the real economy and promoting high-quality development. It will have symbolic significance and demonstration effect.
Zhang Zhaoxing, Yuexiu Group Party Secretary and Chairman, said, "Through the bond of equity, the group will establish closer ties with ICBC, the world's largest commercial bank by assets. And with the help of ICBC's extensive financial and industrial resources, extensive cooperation will be carried out in financial business development, fintech innovation, talent team construction and other aspects, so as to effectively upgrade the development level."
