Debt-to-equity swaps are critical tools within Beijing’s overall deleveraging plan, particularly for state-owned enterprises. Funding difficulties and banks’ capital adequacy constraints have prevented deals from executing so far. However, the PBOC’s RRR cut and a new relaxation of capital requirements, announced within a week, are now targeting these two problems. With deals now expected to move forward, exit plans for banks are more important, with the most likely path via equity sales, requiring a benign stock market environment in the coming years.
