Research On Problems And Countermeasures Of SD Group Mining Company Debt-to-Equity Swap By Transformation-and-Development Fund

At present,China’s economic growth is slowing down and the debt-to-asset ratio of enterprises is high.The increasing non-performing assets driven by debt in the past makes the traditional "discount,package and lawsuit" disposal mode unable to fully adapt to the market environment in the new era.The market-oriented debt-to-equity swap can effectively reduce the enterprise financial leverage,improve the proportion of direct financing,reduce bank’s non-performing loan ratio.Setting up funds to raise social capital,taking funds as the main body to acquire bank creditor’s rights and converting creditor’s rights into equity of target enterprises,it can further activate the motivation of market participants and improve the fairness of transaction pricesThis paper applies stakeholder theory,portfolio theory,transaction cost theory,asset pricing theory and risk management theory to analyze the effect influencing elements of SD Group and secondary mining companies’ debt-equity swap.Through the analysis of the case of SD Group Mining company’s debt-to-equity swap,it is found that Transformation-and-Development fund has the following problems in the fund management process:（1）Fund raising stage: Investors preferring fixed income expect for high return,which cannot match the low capital cost demand of SD Group Mining companies having low profitability;Equity investors expect for more returns in the fluctuation of the economic cycle,while the structure design of the private equity fund is more inclined to be repurchased with low yield.（2）Investment stage: Asset appraisal institution adopts the cost method to value the equity of Mining companies at inflated prices,which reduces the shareholding ratio of Transformation-and-Development fund and damages the interests of fund investors;（3）Post-investment management stage: CCB Capital lacks value-added services for the capital operation of Mining companies,thereby delaying the financing process of enterprises in the capital market;Ignore the standardized management of enterprises,leading to that the proportion of capitals occupied by connected transactions increases year by year;（4）Equity exit stage: equity value of Mining company was not re-evaluated;Low repurchase exit yield;Due to the following problems: the period from listing to reducing shares from secondary market will need at least eight years（3 years for sustained profitability,2 years for review by China Securities Regulatory Commission,1 year for stock lock-up,and 2 years for share reduction）far beyond the 5 years’ time limit of Transformation-and-Development fund,debt in the name of equity,and related party transactions do not conform to the requirements of the CSRC,hereby IPO exit cannot be chosen.On this basis,specific countermeasures are put forward:（1）Fund raising stage:actively use social security funds and targeted RRR reduction funds of the Central Bank for debt-to-equity swap,as well as cooperate with third-party financial institutions to expand the source of funds;Part of the funds are invested with credit in SD Group for three-year,and the other part of the funds are invested in Mining companies with equity.The portfolio strategy of "fixed-income as base and equity to enhance" is implemented,which can not only meet the requirements of clients who pursue fixed income for excess returns,but also attract long-term investors through phased capital allocation.（2）Investment stage: cash flow discount method is adopted to evaluate the equity value,and APP share option model is adopted to price equity liquidity absence;（3）Post-investment management stage: pay attention to inquiry letter from China Securities Regulatory Commission on the listing/merger of similar debt-to-equity enterprises,and assist Mining companies in capital operation;Standardize the financial management system of enterprises,and reduce the risk caused by excessive capital occupation scale;（4）Equity exit stage: adopt the cash flow discount method based on the LACAMP model of liquidity risk to re-evaluate the equity value,obtain more shares of Yan Kuang Energy in exchange for higher valuation,and choose the opportunity to reduce shares from the secondary market.Innovation point is that,select company associated with the listed company as debt-for-equity object for private equity fund,use quantitative analysis method,build assets pricing model to re-evaluate debt-to-equity object,and calculate buy-and-hold excess accumulative total yield of comparable listed company after acquisition,thereby verifying that private equity fund exchanging debt-to-equity asset with listed company for stock can realize market-oriented debt-to-equity swap and achieve good results.The Transformation-and-Development Fund will achieve an annualized return rate of 31.3% by the equity exchange with Yan Kuang Energy and reduction from secondary market.By merging related mining companies,Yan Kuang Energy will eliminate the competition in the same industry,improve the asset scale and profitability.The mining company of SD group absorbed by Yan Kuang Energy will open the channel of direct financing and truly realize the market-oriented debt-to-equity swap.Through the research of this paper,it is found that debt-to-equity enterprises with listed company platforms have significant advantages in market-oriented debt-to-equity swaps,and private equity fund taking this enterprise as debt-to-equity target has larger probability of successful exit and excellent performance.