Wednesday, November 24, 2004

There is a strange story recently about how State Asset Supervision and Administration Commission will conduct an inspection of asset management companies (AMCs) and debt-for-equity swaps that AMCs conducted in the late 90s to relief SOEs. Below is my discussion.

This is very bizarre indeed. Why would they need the SASAC to check up on d-e swaps? First of all, MOF is in charge of monitoring the profitability of AMCs, so they would complain if these d-e swaps were not working out for the AMCs. If there are some sort of financial irregularities associated with d-e swaps, the CBRC would look into it. I see three possible interpretation of this.

The benign version: MOF and CBRC tried to look into the issue, but since they do not control the personnel of large SOEs, they got nowhere. So they asked for SASAC's help. In the spirit of cooperation, SASAC agreed to force SOEs to give over more control to AMCs, which own large stakes in some SOEs.

The bureaucratic in-fighting scenario: I heard from someone that SASAC is fed up with how little power it had and wanted to expand its power. In this case, SASAC is not investigating the SOEs but the AMCs, presumably because the AMCs did something with the shares it received that is not legit. I am not sure what this might be, but perhaps AMCs have inflated the original number of shares they received from SOEs in order to have more stuff to sell to foreigners. Seeing this as a golden opportunity to embarrass the AMCs and the MOF, which is in charge of the AMCs, SASAC is launching this investigation. The ultimate goal is of course to gain control over the d-e swap process.

The elite politics version: This is very far-fetched, but d-e swap was a major invention of the Zhu Administration to relieve the SOEs. This may be either Huang Ju or Zeng Peiyan (not sure who is in charge of SOEs these days)'s attempt to undermine the Zhu legacy and thus possibly the Wen administration. But even I think this probably is not the case. I think the second scenario is the most likely. I guess we will see whether they put the emphasis of the investigation on the AMCs or the SOEs.

Tuesday November 23, 04:58 PM
China To Check Enterprises Involved In Debt-For-Equity Swaps
Yahoo! Finance

BEIJING, Nov 23 Asia Pulse - China is soon to conduct a thorough checkup of the enterprises having executed debt-for-equity swaps with the approval of the State Council, according to the State Assets Supervision and Administration Commission (SASAC).
An SASAC official said the purpose of the checkup is to learn the current situation and existing problems, discover and correct irregular acts, study the policies for the next step work, and prevent financial risks related to debt-for-equity swaps of enterprises.
The SASAC has issued a circular on the checkup to the state assets supervision and administration commissions of all provinces, the four state-owned commercial banks, the four financial asset management companies, the China Development Bank and related central enterprises.
The checkup will cover all debt-for-equity swap enterprises approved by the State Council, including registered new companies after debt-for-equity swap, unregistered new companies after debt-for-equity swap, and enterprises already stopping debt-for-equity swaps.
The circular requires the concerned companies to make self-checkup before December 20 this year, and the SASAC will send joint investigation teams in cooperation with the Ministry of Finance, the People's Bank of China, the China Banking Regulatory Commission and the Audit Office to conduct on-site checks in January next year.
Debt-for-equity swaps, which means conversion of debts owed by a company into the said company's shares usually when the company is unable to repay the debts, is aimed to help such companies get out of difficulty.

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