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.
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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.
The CBRC did not immediately respond to a request for comment.
The move comes after the deputy provincial government led the seven coal miners on a road show to Beijing this summer in an attempt to convince investors to subscribe to their bonds. One company in May offered five-year bonds at nearly double the yield on comparative notes but the initiative on the whole showed few positive results.
"Coal is an important industry to Shanxi therefore the government has to step in to alleviate the problem," said Fitch Ratings analyst Alvin Cheng, noting that companies kept on life support worsen China's glut of coal and other industrial capacity.
At the end of last year, Shanxi's seven largest coal groups had Rmb1.18 trillion in debt, almost as much as the province's Rmb1.28 trillion gross domestic product in 2015, according to Everbright Securities. Fitch estimates current combined debt stands at Rmb1.1 trillion, and according to Chinese media the companies have about Rmb600 billion in short-term debt.
"If the banks support this, they may be able to get back some of these loans. If not, then most of it will become non-performing loans," said DBS analyst Chen Shujin.
Some 21 per cent of all bank lending in Shanxi has gone to the province's seven top coal companies, Zhang Anshun, the head of the province's CBRC, was quoted as saying by Xinhua.
Official figures put China's bad debt at Rmb4.6 trillion as of end-March, or 1.75 per cent of total commercial banking debt in the system. Analysts say the real ratio could be as high as 15 per cent.