China's Huarong Energy investors approve landmark debt-for-equity swap

China Huarong Energy Co

24/03/2016 06:09

HONG KONG, March 24 (Reuters) - Shareholders of heavily 
indebted China Huarong Energy Ltd  1101.HK  voted overwhelmingly 
in favour of a $2.7 billion debt-for-equity swap plan on 
Thursday, backing the first known instance of such a proposal 
that has stoked concerns about Chinese banks taking on 
potentially risky equity stakes. 
    More than 99 percent of investors in the 
shipbuilder-turned-oil explorer that lost more than $1 billion 
in 2014, the last year for which it reported earnings, voted in 
favour of a plan that will massively dilute their holdings. 
Under the plan, unnamed creditors will exchange 17.8 billion 
yuan ($2.7 billion) in debt for a near-90 percent stake in the 
firm.  urn:newsml:reuters.com:*:nL3N16T1PC 
    China's central bank is currently preparing regulations to 
allow banks to swap debt for equity - until now, lenders have 
only done so through investment units using opaque channels. The 
first recorded instance of a swap at a listed firm, Huarong 
Energy's plan may pave the way for a raft of other debt-laden 
companies to follow suit.       
    Minority investors will see their combined holdings shrink 
to 7 percent from 64 percent under the plan, approved at an 
extraordinary shareholder meeting on Thursday in Hong Kong.  
    Analysts had expected both Huarong Energy's banks, whose 
names have not been disclosed, and shareholders to approve the 
deal for lack of alternative solutions at company whose fortunes 
have steadily declined since posting a loss in 2012. Shares have 
tumbled about 90 percent in the last four years, leaving the 
firm with a market value of about $2.3 billion. 
    Huarong Energy stock trimmed earlier gains of more than 4 
percent and were trading up 1.4 percent at 0553 GMT. The broader 
market  .HSI  was down 1.2 percent.  
    The company is due to report results for 2015 on March 30.  
In its most recent annual statements, for 2014, the company 
posted a net loss of 7.75 billion yuan ($1.19 billion).  
 
($1 = 6.5103 Chinese yuan renminbi) 
 
 (Reporting by Saikat Chatterjee; Editing by Kenneth Maxwell) 
 ((saikat.chatterjee@thomsonreuters.com; 852-2843-6548; Reuters 
Messaging: saikat.chatterjee.reuters.com@reuters.net)) 
 
Keywords: HUARONG ENERGY DEBT/