context: Zombie enterprises and companies impacted by de-capacity are under the spotlight again, with the joint release of this policy aiming to settle their debt by end 2020. One of the most important de-capacity policies released in 2018, it is the first detailed timetable with central authority. The heavy emphasis on bankruptcy reflects central resolve to now quickly eliminate non-performers. The policy touches on unemployment and other tangential issues, but provides little in the way of detailed solutions.
NDRC and ten other agencies jointly released ‘Notice on further pushing forward debt settlement for zombie enterprises and de-capacity enterprises’ on 4 Dec 2018. The policy aims to further push forward supply-side structural reform by actively dealing with debt issues of zombie enterprises and enterprises impacted by de-capacity campaign (hereafter de-capacity enterprise). It stipulates
- principles for debt settlement
- ensuring market plays the core role and the procedure is in accordance with laws
- government should play guidance role
- effectively and actively preventing risks
- scope and settlement measures
- direct debts: debts directly borne by zombie or de-capacity enterprises with clear debtor-creditor relationship
- evaluating enterprises business value, debt repayment capabilities and liability situations
- using bankruptcy liquidation, bankruptcy restructuring, debt restructuring or M&As
- actively seeking repayment for enterprises still possessing liquefiable assets to prevent escape from debt liabilities
- packaged debts: conglomerates’ debts that are partially borne and used by zombie and de-capacity subsidiaries
- distinguishing zombie enterprise liabilities from the rest of the conglomerate and settling the liabilities as direct debts
- guaranteed debt: debts on zombie and de-capacity enterprises with a guarantee from their parent conglomerate or the third party
- removing part or whole of contractual guarantee obligations of the conglomerate or the third party based on mutual consent by creditors and borrowers
- direct debts: debts directly borne by zombie or de-capacity enterprises with clear debtor-creditor relationship
- procedure and time: all settlement should be finished before the end of 2020
- step I: determining the list of enterprises: localities are asked to submit the list within three months from now
- step II: formulating plans and implementing them
- enterprises still have operation values: encouraging companies’ debt settlements, M&As and seeking strategic investors (to be done within six months after step I)
- enterprises qualified for bankruptcy restructuring: local governments, SOE supervision agencies and finance agencies should actively push forward the restructuring (to be done within six to nine months after step I)
- enterprises qualified for bankruptcy liquidation: liquidating them immediately
- step III: follow up measures for enterprises facing settlement difficulties
- putting them on a watchlist
- strictly controlling their financing and business operations
- requiring enterprises to submit plans to lower debts and if qualified, to enter bankruptcy procedure
- improving policy and institutional environment
- actively using property trading, rental, securitisation of assets and other measures to facilitate debt settlement
- making targeted finance policies
- strictly controlling financing support towards zombie enterprises and prohibiting preferential treatments
- encouraging financial institutions to grant debts for qualified enterprises in support of their M&As
- improving social securities, finance and taxation policies
- supporting employment settlement
- strictly prohibiting local government subsidies in support of zombie enterprises
- supporting reuse of vacant land
- setting up an enterprise credit system that documents their debt and business operations
- implementation
- strengthening coordination between governments and courts. No organisations, agencies, enterprises or individuals should hinder enterprises’ filing of bankruptcy case applications to courts
- strengthening credit management and joint penalisation
- ensuring coordination among central agencies