Case Study On Market-oriented Debt-to-equity Swap Of China Heavy Industry

As China’s economic development has entered the "new normal",the past model of rapid economic growth driven by investment and leverage has become unsustainable.The excessive leverage ratio of non-financial enterprise sectors,especially state-owned enterprises and central soes,has gradually aroused great attention from all sectors of society.How to promote the sustainable development of enterprises through the effective reduction of leverage through the market-oriented debt-to-equity swap has become a hot topic of economic and market research.Focusing on China’s heavy industry market-based debt-to-equity swap project,this paper has carried out the following research: First,through the literature research method and comparative analysis method,on the one hand,we have sorted out the two rounds of debt-to-equity swaps in China,and clarified the current debt-to-equity swap.The "marketization" characteristics,the "two-step" debt-to-equity swap model and the applicable targets,and the analysis of its implementation status;on the other hand,the practical experience of the US,South Korea and Japan debt-for-equity swaps.Second,using the case study method,first sort out the operational steps of the project.Secondly,it analyzes the motivation of the parties involved,the pricing strategy adopted by the company and the key points of the successful landing of the project.Finally,the paper analyzes the implementation effect of the project from the perspectives of market reaction,financial performance,equity and governance structure,and corporate value: using the event research method to explore the attitude of small and medium shareholders to the debt-to-equity swap event and the short-term creation of the event for the company.Value;using financial indicator evaluation method to analyze the improvement of the debt-to-equity swap to theshort-term financial situation of the enterprise;using the discounted cash flow method to analyze the effect of debt-to-equity swap on the value of the enterprise and the ability to continue to operate.Through the combing and analysis of the case,the following conclusions can be drawn: First,the new “two-step” debt-to-equity swap model implemented by China Heavy Industry can help enterprises get out of trouble and accelerate projects faster than the direct non-public offering model.Second,overall,the debt-for-equity swap project has improved the production,operation and financial situation of China heavy industry,and increased the short-term investment value of China heavy industry by 2.679 billion yuan,the interest-bearing liabilities by 21.668 billion yuan,the annual interest expense by 881 million yuan,and the asset-liability ratio by 11.39 percentage points.On the basis of corporate equity and governance structure,the company’s ability to continue to operate has been enhanced,and the overall value of the company has increased by approximately 9.436 percentage points.Third,the “marketization” approach of China’s heavy industry debt-to-equity swaps in terms of subject selection,program formulation,conversion pricing,and equity exit is worth learning from other companies.Although the project has achieved good results,it still has the shortcomings of using all the capital increase to repay the loan,the new shareholders failing to participate in the restructuring and restructuring of the company,and the information asymmetry,operation and performance in this model.Risks such as changes and diluted immediate returns cannot be ignored.Therefore,based on the analysis and summary of the practical experience,risks and shortcomings of China Heavy Industry case,this paper puts forward relevant suggestions in a targeted manner to provide reference and reference for other companies to implement debt-to-equity swap.