There's More Equity in China, But a Lot of It's Debt
(Bloomberg Gadfly) -- China's debt problems are old news, but several analysts in Asia have been telling me that the world is ignoring the amount of equity that's been added to balance sheets of late. It's true -- if only it were that simple.
AÂ string of share offerings, asset disposals and sales of bonds that convert into equity has pushed the median debt-to-equity ratio of publicly traded Chinese companies to the lowest level in almost a decade, according to data compiled by Bloomberg.Â
Before you celebrate, however, look a bit more deeply into the numbers. Much of the stuff that has been viewed as equity could be seen as debt, too. Issuance of convertible bonds, which pay fixed coupons and may be transformed into shares at a certain level, increased last year after a pause from a record streak in 2013 and 2014. While those securities sit further down the line for payment if a company is liquidated, they still require regular payments and therefore increase gearing.
Also underlying the improvement are preferred stock or perpetual bonds, which accountants and banks consider equity. Those securities, however, also pay fixed yearly amounts and thus add to gearing. Some varieties have clauses that could force the issuer to redeem them in a few years, just like a normal debt security. And never before have Chinese companies had so much of those out there.
The result has been that the ratio of debt to common equity, a measure that shows what really is left for shareholders after all creditors are paid, remains very high -- even though it has dropped from the peak reached in 2014.
But that measure only considers traditional borrowings. If preferred stock is added to debt and divided by common equity, things look a lot more worrying: There's on average $1.65 in obligations that pay fixed coupons for every $1 of shares in Chinese companies.
So, yes, China's listed companies are aware of their debt problem and are doing something about it. As with many other things in China, though, they're adorning the issue instead of addressing it.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Christopher Langner is a markets columnist for Bloomberg Gadfly. He previously covered corporate finance for Bloomberg News, and has written for Reuters/IFR, Forbes, the Wall Street Journal and Mergermarket.
To contact the author of this story: Christopher Langner in Singapore at clangner@bloomberg.net.
To contact the editor responsible for this story: Paul Sillitoe at psillitoe@bloomberg.net.
-
Opinion | India at 38: From Innovation Overperformer to Innovation Powerhouse
India now has 453 VC-backed deep science startups, 18 of them late-stage, after 117 percent growth since 2020. Laurus Labs, at USD 9.3 billion, is the most valuable deep science company in any middle-income economy outside China.
-
Navigating Energy Crossroads: S Jaishankar's Call For Diversified Supply Chains At G20 Ministerial Meeting
As geopolitical fault lines continue to test maritime trade routes and commodity flows, Jaishankar's message remains pertinent: true economic resilience requires open markets, protected transit lines, and a genuine commitment to multilateral cooperation rather than coercion.
-
Indians Are Travelling, But Not Every Journey Is A Holiday | The Week In Whys
Pilgrims, patients and working women are the real travellers, and the system hasn't quite caught up with them.
-
Getting To Work Costs Women More | The Reason Why
It is not just about women paying more than men. It is about women paying much more in cities than in villages.
-
AI Bias In Investing Cannot Be Eliminated, But It Can Be Governed
Framing is a particularly important example as identical financial information presented in terms of gains rather than losses can lead an LLM to reach a different assessment.
-
Joining The Dots | Dark Skies, Steady Diya: Why Hope Holds This Diwali
With war, a weak rupee and foreign outflows weighing on sentiment, policymakers at the NDTV World Summit and market veterans at NDTV Profit Ignite: Diwali Edition offered the same advice: stay invested and filter out the noise.
-
The Curious Case of Equitas Small Finance Bank And A CEO Who Quit For Stock
PN Vasudevan believes persistent investor concerns over a perceived conflict of interest had become a governance overhang on Equitas Small Finance Bank's stock, even as the lender improved profitability and asset quality.
-
Talking Points This Week: AI Cash Burn, A Tiger Comeback And An India That Still Finds Its Own Path
India is not immune to higher oil or tighter global liquidity, yet its earnings base is broader, its domestic policy levers are still available.
-
Foreign Investors Own Half Of HDFC Bank and ICICI Bank. An LTCG Cut Could Matter Most Here
Foreign portfolio investors have US$115 billion parked in HDFC Bank, ICICI Bank. If the government cuts long-term capital gains tax, Jefferies says returning foreign money could land here first.