A Case Study On The Motivation And Economic Consequences Of Enterprises’ Participation In Marketable Debt-to-Equity Swap

In order to promote the progress of supply side structural reform,the state has issued policies to support enterprises to convert marketable debt-to-equity swap since 2016.The first enterprises implemented are concentrated in central enterprises and local state-owned enterprises,and there are problems that the project funds have been in place for a long time.In the follow-up exploration,with the refinement of relevant provisions and innovation of debt-to-equity model,including private enterprises in the follow-up exploration process,with the refinement of relevant provisions and innovation of debt-to-equity model,private enterprises have been involved More and more enterprises have joined the marketable debt-to-equity team,and achieved remarkable results.After the implementation of the institution debt and equity,the "two-step" debt-to-equity model of repurchase of shares has been applied and accumulated relevant experience.What are the reasons for the enterprises to convert marketable debt to equity in addition to directly reducing leverage? How to ensure the rationality of the result in the process of valuation pricing of debt-to-equity enterprises? What economic consequences will the implementation of marketable debt-to-equity transfer bring to enterprises? What are the risks after implementation? Under the background of various departments’ policies to support enterprises to marketable debt quasi shares,the research on the above issues will help the smooth development of marketable debt to equity.Therefore,this paper first defines the concept of debt-to-equity,combs out the valuation theory,trade-off theory and agency theory involved in the implementation of debt to equity,lays a theoretical foundation for the analysis of the following cases,and reviews the literature related to the implementation motivation,pricing,risks and economic consequences of debt-to-equity.Secondly,the paper introduces the basic situation of the case from three aspects: the background of Huayou Cobalt implementing the marketable debt-to-share,the main operating status of the company and the scheme of the marketable debt-to-share conversion.Thirdly,combined with the introduction of the case,the rationality,implementation motivation and economic consequences of valuation pricing in the process of implementing marketable debt-to-equity conversion of Huayou Cobalt are analyzed.Finally,the conclusion and suggestions are put forward.The first is to fully disclose the information related to the debt-to-equity scheme in the implementation announcement of the marketable debt-to-equity conversion,which is helpful for the external information users to make decisions.Second,the reasons for the marketable debt-to-equity conversion of Huayou Cobalt are to conform to the policy and regulations,optimize the financing structure,promote the transformation and upgrading and obtain the positive response of the market.Third,the implementation of marketable debt to equity has significantly reduced the asset liability ratio of Huayou Cobalt and improved its operational capacity.However,due to the large decline in cobalt price,the profitability and growth capacity of Huayou Cobalt have not changed against the wind,and affected by many factors such as the information disclosure of marketable debt-to-equity conversion does not meet the requirements,the short-term market response of the debt-to-equity has not been taken the expected positive response,which hindered the way of transformation and upgrading of Huayou Cobalt.Fourthly,after the implementation of marketable debt-to-equity,there are still risks brought by the difficulty of shareholders’ equity protection,the rise of asset liability ratio and the great fluctuation of cobalt price.The relevant suggestions are that the implementing agencies and enterprises should improve the contents of the equity protection of shareholders through consultation,and then the implementation enterprises should make good use of the opportunity of marketable debt to alleviate financial pressure to carry out transformation and upgrading,and the last is that the implementation enterprises should standardize the disclosure of the specific contents of the implementation plan of marketable debt to equity.Huayou Cobalt,as the first private enterprise in the non-ferrous metal industry to implement the marketable debt-to-equity,analyzes the policy background,the development status of the industry and the motivation of the enterprise itself.The conclusion is representative.In addition,the paper summarizes the reasons that the economic consequences of the marketable debt-to-equity conversion of Huayou Cobalt fail to meet the expectations,and the analysis of the risks can also provide reference for other enterprises in the industry who want to implement the marketable debt-to-equity.