Shanxi province to launch CDS for coal producers

Female coal miners work at the Huaibei mine, East China's Anhui province, March 24, 2016. [Photo/IC]

TAIYUAN - China's top coal-producing province is preparing to launch credit default swaps (CDS), according to Shanxi provincial office on financial work.

A CDS, popular in developed economies, is an agreement that the seller of the CDS will compensate the buyer, usually the creditor of a bond, in the event of a default by the debtor.

Shanxi is the first provinces to try CDS, the office said.

The CDS will increase the credit options of coal producers, and is in response to a changing financial landscape in the province. Companies have been turning to bond issues rather than bank loans for financing, said the office.

Shanxi companies have 341 billion yuan ($50 billion) of outstanding bonds in China's interbank debt market. However, coal prices have dived and producers have recorded significant losses and increasing defaults. Many potential investors have begun to question the creditworthiness of coal producers.