Insurance funds, pension funds and qualified retail investors will be allowed to invest in banks’ investment plans that have debt-to-equity swaps as underlying assets.
With this move, Chinese regulators expand funding sources for commercial banks to invest in debt-to-equity swaps, reported the financial news site Caixin.

The CBIRC, in a policy document issued this week, outlines a set of new rules aimed at bolstering a programme designed to reduce leverage in the economy.

Asset investment companies (AICs) controlled by major banks are now allowed to set up investment plans with debt-to-equity swaps as underlying assets, including convertible bonds, debt-to-equity special bonds, ordinary shares, preferred shares and debt-to-preferred shares, the CBIRC document says.

AICs can raise funds for the investment plans through private sales to as many as 200 qualified investors including insurance and pension funds under the new rules. Institutional investors qualified to participate in the investment should have more than CNY20m ($2.8m) in net assets by the end of the previous year, according to the rules. Each investor should put no less than CNY3m in a single debt-to-equity investment plan.

Under the new rules, the investment products should be managed as closed-end funds, and investors can transfer shares during the period. Such terms offer greater liquidity and will attract more investors who prefer shorter-term investments.


Since 2016, China has made debt-for-equity swaps a key part of its agenda to lower leverage ratios in the heavily indebted corporate sector and reduce lenders’ bad-loan risks.

The financial regulator in 2017 approved the establishment of AICs by five largest state banks — the Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, China Construction Bank and the Bank of Communications — as the leading players in the strategy.

AICs have mostly used their own capital or funds raised from bond sales, interbank lending and borrowing from parent banks to invest in debt-for-equity assets. Since 2018, the five AICs have issued CNY100bn of bonds to fund debt-for-equity swaps.


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