China Construction Bank Ltd. is raising about 24 billion Chinese yuan to create a fund to help cut the debt of loss-making Wuhan Iron & Steel (Group) Corp., Bloomberg News reported Oct. 12, citing a statement from the Beijing-based lender.
Both companies have already completed half of the funding after reaching an agreement in August, raising 12 billion yuan in the first stage in which Wuhan Iron & Steel contributed 2 billion yuan.
The total of about 27 billion yuan funding being sought is expected to help lower Wuhan Iron & Steel's leverage ratio of 73.7% by 10 percentage points, Bloomberg quoted the Business Herald as saying.
The fund is expected to acquire shares in the steelmaker's units in exchange for assuming maturing debt liabilities.
The Wuhan Iron & Steel fund appears to be a debt-to-equity fund, according to a Shanghai-based analyst at China Merchants Securities Co., Ma Kunpeng. Kunpeng said the government is making a coordinated effort to tackle high corporate leverage.
"That means they are serious about it so I wouldn't discount the potential effect of it," the analyst added.
In September, China's State Council approved the proposed 3 billion yuan merger of Wuhan Iron and Baosteel Group Corp., with the resulting company to be named China Baowu Steel Group.
As of Oct. 11, US$1 was equivalent to 6.73 Chinese yuan.