Financial Quota of the Coal Industry to be Guaranteed

“Financing predominates， pre- cedes and outweighs anything else.” This is the positioning of Lu`an Group towards financing for the Year 2016， as one of the seven largest coal companies in Shanxi province. Not long ago， the Group CEO Li Jinping and General Accountant Hong Qiang lead their team to have negotiation with over 10 banks in cities of Beijing， Taiyuan， Shanghai， etc. for financing cooperation. Confronted with unprecedented predicament of financing， coal compa- nies begin taking initiatives in seeking for supports from financial institutions.

It was reported that Shanxi coal companies have recently received one document of Implementation Details Regarding Strengthening Financing Supports from Shanxi Financing Of-fice. The document proposes that headquarters of financial institutions should continue to offer supports to good coal companies， the financing quota of 2016 should be guaranteed no less than that of 2015， and no loans should be withdrawn by banks for seven province-owned coal groups.

Implementation Details constitutes one of the coal supply structural reform implementation details in Shanxi. It includes seven main items and raises its request of how financing should support the coal industry， respectively from aspects of “guaranteeing scale， striving for production， expanding direct financing， optimizing structure， destocking inventory， propelling innovation， and suppressing bad loans”.

Main contents include： guide financial institutions to enhance their recognition of the status of the coal industry， strive to gain supports from headquarters of financial institutions， offer financial support to good coal companies， guarantee the financing quota of 2016 to be no less than the previous year， offer privileged supports to coal companies that take initiatives in de-capacity and have solvent capabilities with enough loan quality monitoring and correct classification as well as adjustment of loan deadlines and payment methods， disallow loan-withdrawing for seven province-owned coal groups.

Regarding direct investment in enterprises， low-cost funds through inter-bank bonds markets are supported， supplemental funds through tools like perpetual bonds are recommended， fund-raising through products like debt-merging ， debt and loan coalition， is also recommended. The document supports coal companies to propel asset securitization， supports listed companies to re-finance and place private equity， and encourages subsidiaries of large coal groups to finance by listing themselves on the new Agency Share Transfer System.endprint

In addition， Implementation Details also encourages financial institutions to support coal companies` debt reorganization and leverage reduction by ways of transference of debts into shares， merger of loans， customizing equity products， etc.； propels them to carry out business like mortgage loans of pollution emission rights and carbon emission rights， etc. and support coal companies to reform energysaving and environmental protection and transform for upgrading； supports them to expedite the progress of transferring bad loans in quantities， encourages asset management com- panies to deal with on bad financial assets first， strengthens coal companies` capabilities of re-financing， and strives to see a Y-o-Y decline of bad loans rate at the end of 2016.

“Offer coal companies financial supports for developments and transformation through various financial methods.”One insider from Shanxi Finance Office comments that， the launching of this policy is to break down available measures that financing could assist in coal supply reform， to help good coal companies out of financial predicaments， to better solve overcapacity and finally realize the industry upgrading. Besides， to solve financing problems fosters the prevention of Shanxi coal companies from possible financial risks.

With the launching， Shanxi coal companies have been recently active in contacting financial institutions in the hope of gaining financial supports. In early June， Lu`an Group officially released that its CEO and General Accountant visited over 10 banks in cities of Beijing， Taiyuan， Shanghai， etc. for financing cooperation. On June 6， Yangquan Coal Group signed a strategic cooperation agreement with Minsheng Bank； both parties would cooperate on financial services， transference of debts into shares， merger of funds， etc. On June 17， Datong Coal Mine Group held meetings with related enterprises and banks； ICBC， CMB， Jinzhong Bank and Changzhi Bank were present； vice governor of Taiyuan branch of PBoC raised that financial institutions should judge Datong Coal as it develops， create financial methods and provide services for companies.

In 2015， Shanxi Secretary of Communist Party said， Shanxi was a typical resource-based province， coalbased industrial added values account for over 80% of the entire Shanxi added values. No matter bank credit loans or direct financing， the Shanxi financing sector has been focusing on the coal-based industry.endprint

In the meanwhile， some financial institutions hold their attitudes towards the Shanxi policy. One insider from the credit loan approval department of Ping`an Bank commented：“Existing large clients will still be supported in terms of credit loans， but there are only very few small coal companies that can receive credit loans. The coal industry has been classified as one of the restricted industries， the total credit loan is strictly controlled and criteria of clients tend to be stricter.”

One staff in Agricultural Bank of China proved that its financing support for coal companies was generally based on “rigorous” policies and rateexamining was stricter to new coal clients. He also straightforwardly said that it was necessary for banks to support large local companies if banks expected good development there.

General manager of one Shanxibased consulting company Mr Ma said that the common problems coal companies faced were difficult financing， high receivables， and great financial pressure. He pointed out that the aforementioned policy had very good starting points， but there were also two problems： “One is that although seven large coal groups in Shanxi have high debts， they could still get funds from financial institutions more easily than private companies； the policy is more large companies-oriented and fails to solve financing problems for private ones. The other is that it still doubts whether high risk-sensitive” banks will implement this policy because government policies couldn`t outweigh banks` risk controls especially for nonShanxi province governed banks； it is to be observed whether local policies have the binding effect.

In 2013， the private company of Shanxi Liansheng Group， whose owner once made a high-profile declaration to marry off her daughter with dowry of 70 million yuan， saw its capital chain cracked. The company` debts owing to 15 banks and 6 trusts once exceeded 3 billion yuan； it also adopted mutual guarantee methods with over 10 companies， leading to credit loans debt of 2 billion yuan. Its fate raised alarms to many financial institutions.endprint