DeHeng Advised China State-Owned Capital Venture Investment
Fund on Participating in the Debt-To-Equity Swap Project of CSIC

2017-08-30

On August 16, 2017, China Shipbuilding Industry Corporation ("CSIC") announced a market-oriented debt-to-equity swap plan. CSIC planned to introduce eight investors to increase capital for Dalian Shipbuilding Industry Corporation and Wuchang Shipbuilding Industry Group, two of its wholly-owned subsidiaries, in the form of creditor's rights or cash, with a total investment of approximately 21.9 billion yuan.

CSIC is a platform for the listing of shipbuilding assets of CSIC and the major researcher and supplier of naval vessels in China. It is the only enterprise in China's shipbuilding industry listed in the Fortune Global 500. CSIC has had successful experience in participating in the refitting of Liaoning aircraft carrier. Military products it developed and manufactured are "vital weapons of the country" and are of great significance to the national security.

China State-Owned Capital Venture Investment Fund Co., Ltd. is jointly invested and set up by China Reform Holdings Corporation Ltd., a state-owned capital operation company authorized by State-owned Assets Supervision and Administration Commission of the State Council, as its main sponsor and controlling shareholder, together with Postal Savings Bank of China Co., Ltd., China Construction Bank Corporation, Shenzhen Investment Holdings Co., Ltd. and other agencies.

China State-Owned Capital Venture Investment Fund Co., Ltd. invested 8 billion yuan in this debt-to-equity swap project, ranking top among all investors. Other investors include China Cinda, Orient Asset, China Life Insurance, China Structural Reform Fund Corporation, HWABAO Investment, China Merchants Pingan AMC, Guohua Military and Civilian Integration Fund, etc.

The capital increase made by all investors for these subsidiaries of CSIC will efficiently reduce the leverage of the subsidiaries and lessen the financial pressure. After the completion of this debt-to-equity swap project, CSIC has the right to choose to issue shares to investors through private placement in order to acquire the shares of the subsidiaries they hold, with which the investors will realize their investment exit. This project set a precedent for the market-oriented debt-to-equity swap of the state-owned military enterprise and thus has benchmark significance for lowering the leverage of the same. The NDRCNDRC also took the project as a model project for the market-oriented exit of the debt-to-equity swap in state-owned key enterprises.

Dong Chen, He Xinyu and Wang Huakun of DeHeng Law (Beijing) Office provided a full range of legal services for China State-Owned Capital Venture Investment Fund Co., Ltd. to participate in this project. DeHeng will, as always, continue to carry out in-depth research in the field of market-oriented debt-to-equity swap and provide its clients with high-standard legal services.