China's most coal-dependent province has moved to ease rising pressure on seven of its largest coal miners by extending the maturity on up to Rmb400 billion ($60 billion) in loans, in a sign of the severity of the bad-debt crisis gripping the country's depressed coal sector.
The move by Shanxi province marks the first time a local regulator has asked banks for leeway on loans for a select group of companies. It is the latest in a series of tactics employed by the country as it tries to pare bad debt, which by some analysts' estimates has reached epidemic levels.
The central government last year launched a Rmb4 trillion-and-counting program that pushed banks to swap debt from many local government businesses for longer-maturity bonds. This year, Beijing announced a controversial plan in which banks would trade corporate debt for equity in companies.
Corporate debt is a concern across China but the situation is particularly desperate in Shanxi. A four-year slump in coal prices has left miners in the red and private companies unable to repay high-interest-rate shadow-banking loans that date back to a boom in coal prices a decade ago. A collapse in the chain of credit in the shadow-banking sector is reverberating through the province, which accounts for about one-quarter of coal production in China, itself the world's largest coal industry.
The Shanxi branch of the China Banking Regulatory Commission will allow the province's seven biggest coal companies to restructure short-term debt into medium and long-term loans, the state-run Xinhua news agency reported.
Shares in the seven state-owned companies soared on Monday — several by their 10 per cent daily trading limit — with a weekend report by respected business news magazine Caixin that Beijing was considering debt-to-equity swaps for the beleaguered sector adding a tailwind.