Creditor panels urge help for firms with financial problems

Creditor committees in China are pushing for reforms and provide support for companies that have good prospects for development but have run into temporary trouble by stepping up financial aid through loans and helping them with deleveraging and debt restructuring.

"Using the committees as information sharing and action coordination platforms, creditor banks were able to fully understand, analyze and make judgments of the risks and operating conditions of relevant companies. Members of the committee reached a consensus on whether or not to continue to support a company and made plans for lending or risk mitigation accordingly," said Tong Meng, deputy director-general of the Sichuan Office of the China Banking and Insurance Regulatory Commission.

"Creditor committees have been running under the mechanisms of information sharing, collective meeting, concerted action, unified credit granting, joint prevention of risk and behavior constraint," he said.

China's banking and insurance regulator defines a creditor committee as a temporary organization established by at least three creditor banking institutions of a company that has run into difficulty in repaying a large amount of debt.

Members of a creditor committee will decide whether to give strong support to a company, help a firm in financial hardship, or withdraw their lending support to that company. The committee will make decisions on granting loans and debt restructuring and set a price for its services through discussions and negotiations between the committee and the company.

By the end of March, the banking sector in Southwest China's Sichuan province had set up 4,170 creditors' committees, of which the credit balance reached 2.03 trillion yuan ($293.52 billion). They decided to support 2,941 companies, help 599 companies going through hard times, and gradually stop lending to 481 companies while trying to recover as much of their loans as possible through a market withdrawal system. The committees increased, stabilized and restructured loans totaling 545.3 billion yuan.

"The goal of creditors' committees is to protect the rights and interests of financial institutions while maintaining local economic and social stability. The committees will work hard to help companies get through tough times in business, restore their profitability and market value, resolve their debt crisis step by step, and achieve win-win outcomes," said Zuo Kun, vice-general manager of the Sichuan branch at Bank of China Ltd.

Serving as the chairman of some creditor committees, Bank of China hired consulting firms, law firms and credit ratings agencies to help the committees find out the real financial status, the condition of assets and legal problems of indebted companies, and provide important reference for the committees to make plans to help these companies. The introduction of third-party institutions to assist the committees also effectively improved the level of acceptance and cooperation of committee members and the companies, said Zuo.

In recent years, some private enterprises deviated from their core business and expanded in an irregular and improper way which caused excessive debts and even led to capital chain rupture, said Yang Lei, secretary-general of the Sichuan Banking Association.

"By encouraging the establishment of creditor committees, our banking association guided private companies to correctly understand what a reasonable debt load is. Members of the creditors committees took concerted action to help private firms comb through their debt structure, dispose of idle assets, return to core business and deleverage," she said.