Chinese insurers barred from using PE to spur government borrowing
Chinese insurers have been banned from using their private equity units to lend capital to projects backed by local governments for fear that this will inflate already sizeable debt burdens and raise financing costs in the real economy.
The concern is that the asset management arms of insurance companies are launching investment schemes that appear to be private equity but are in fact debt instruments. As such, the China Insurance Regulatory Commission (CIRC) has ruled that these schemes must not offer fixed returns to investors and principal capital doesn’t have to be returned once the investment period expires. This is intended to underline the equity risk of these projects.
The central government announced last year that insurance companies would be encouraged to participate in public-private partnership (PPP) projects by means of debt, equity or a combination of the two. However, some smaller insurers have abused the system by disguising debt as equity for projects backed by local governments, state-owned enterprises, and private players such as real estate developers.
The CIRC said it will strengthen its supervision of insurers' PE activity in the infrastructure space. This will include assigning specific institutions to participate in projects.
The Ministry of Finance said last month that local government debt stood at RMB16.6 trillion ($2.5 trillion) at the end of November, below the RMB18.8 trillion ceiling set for 2017. However, an IMF working paper issued in November said China should broaden its accounting methods to reflect the role played by PPPs, local government financing vehicles, and government guidance funds.
More on Greater China
Latest News
Asian GPs slow implementation of ESG policies - survey
Asia-based private equity firms are assigning more dedicated resources to environment, social, and governance (ESG) programmes, but policy changes have slowed in the past 12 months, in part due to concerns raised internally and by LPs, according to a...
Singapore fintech start-up LXA gets $10m seed round
New Enterprise Associates (NEA) has led a USD 10m seed round for Singapore’s LXA, a financial technology start-up launched by a former Asia senior executive at The Blackstone Group.
India's InCred announces $60m round, claims unicorn status
Indian non-bank lender InCred Financial Services said it has received INR 5bn (USD 60m) at a valuation of at least USD 1bn from unnamed investors including “a global private equity fund.”
Insight leads $50m round for Australia's Roller
Insight Partners has led a USD 50m round for Australia’s Roller, a venue management software provider specializing in family fun parks.