(Yicai) Jan. 16 -- Chinese water supply and treatment firm Jiangnan Water Utilities has become the largest shareholder of Jiangyin Rural Commercial Bank through a debt-to-equity swap to ease the debt pressure on the Chinese regional lender.

State-backed Jiangnan Water converted 5.6 million convertible bonds into 141.8 million common shares of Jiangyin Bank, equal to 6.1 percent of the total, on Jan. 12, the Jiangsu province-based lender announced yesterday.

Jiangyin Bank’s former biggest shareholder Jiangyin Xinjinnan Investment Development has thus become the bank’s second-largest shareholder with a 4.2 percent stake.

Jiangnan Water announced in November that it would buy no more than CNY600 million (USD83.5 million) worth of Jiangyin Bank’s soon-to-expire convertible bonds and convert them into the bank’s shares within a specified time limit.

Shares of Jiangyin Bank [SHE: 002807] rose 0.5 percent to CNY3.75 (52 US cents) as of lunch break today. Therefore, the 141.8 million shares Jiangnan Water holds in the bank are worth around CNY532 million.

The convertible bonds that Jiangnan Water bought were part of a batch worth CNY2 billion (USD278.4 million) issued by Jiangyin Bank in January 2018 and set to expire on Jan. 26. Therefore, there are still around CNY1.2 billion worth of Jiangyin Bank convertible bonds, so the lender must redeem them when they expire, Jiangyin Bank noted.

Bank stocks trading in the Chinese mainland market have been sluggish recently, so convertible bond holders are unwilling to convert their bonds into shares. Nonetheless, lenders have no choice but to bring in new shareholders to ease debt repayment pressure when convertible bonds are close to expire, a source from a financial institution told Yicai.

Founded in 2003, Jiangnan Water is majority-held by Jiangyin Public Asset Management. In the first three quarters of last year, the firm reported CNY256 million in net profit and CNY968 million in revenue, up 29 percent and 15 percent, respectively, from a year earlier.

Editors: Dou Shicong, Futura Costaglione