Research On The Market-oriented Debt-equity Conversion

With the outbreak of the financial crisis in 2008,China's economy is facing the dual predicament of falling GDP growth,sluggish external demand and insufficient domestic demand.In order to expand domestic demand and ensure stable and rapid economic development,China has adopted proactive fiscal policies and moderately loose monetary policies to stimulate a sluggish economy.In recent years,the shortcomings after large-scale economic stimulus have gradually begun to show.Enterprises,especially traditional enterprises,have experienced steep rises in their leverage ratios,heavy corporate debt burdens,deteriorating operating efficiency,and severe overcapacity.The government promptly put forward supply-side structural reforms to cope with this downward trend.Debt-to-equity swaps have been re-introduced after a lapse of 17 years as an aid to deleveraging.This round of debt-to-equity swaps emphasizes a "market-oriented,legalized" approach.In order to comply with the willingness of the participating parties,we will conduct self-deployment and self-financing on debt-equity swap projects.At present,China is still in the stage of trying to convert its debt into shares.Although there is already experience in debt-to-equity swaps,the implementation background of the two rounds of debt-to-equity swaps,the purpose of stock swaps,the operation process,pricing mechanisms,and exit methods are all different.Therefore,we have It is still necessary to continue to explore a market-oriented debt-to-equity transition that suits China's national conditions on the basis of existing experience.This paper takes the case of market-oriented debt-to-equity conversion of Wuhan Iron and Steel Group as the research object.Through the analysis of this case,it discusses the significance and suggestions of high-leverage companies to implement debt-to-equity swaps.Debt-to-equity swaps are unique products under different market mechanisms and do not have universal applicability.Based on this,on the basis of a large number of domestic and foreign related literatures,this paper combines the analysis of three foreign debt-to-equity swap cases with different periods,different operating mechanisms,and different modes of operation to refine a set of theoretical guidance framework that meets the actual situation in China..Guided by theories,the comparative analysis of the two rounds of debt-to-equity conversion that has been carried out in China,including the implementation background,implementation purpose,pricing method,and exit mechanism,aims tohighlight the necessity and rationality of this round of market-oriented debt-to-equity conversion.As well as summing up the experience and lessons learned from the previous round of debt-to-equity swaps,it will be beneficial and helpless.The main subject of the case selected in this article is a leading enterprise in a representative industry,and it has certain reference to the study of the related industry debt-to-equity swap.By reviewing the background and conditions of WISCO's implementation of debt-to-equity swaps and the specific operating model in the process of debt-to-equity swaps,and from the four aspects of financial status,corporate governance,risk prevention,and exit mechanisms,after implementing debt-to-equity swaps for Wuhan Iron and Steel Group The effect of the evaluation analysis.After the study,we found that there are four problems in the conversion of marketized debt into debt.First,the operating efficiency of the company is closely related to the vital interest of the bank.The uncertainty of the operating efficiency increases the risk of the bank's holding shares.Second,there is still a state-owned enterprise after the debt-to-equity swap.With the big problem of stock ownership,the interests of small and medium shareholders will inevitably be eroded,and corporate governance needs to be strengthened.Third,equity investment guards against risks through the selection of stocks and control of their shareholdings.The essence of debt-equity swaps is equity investment,but banks are There is a lack of professionalism in the screening of convertible companies and the control of the ratio of shares to be converted,which increases their market risk.Fourth,the existing capital market is not perfect,and implementing agencies are restricted by the channel when the equity is withdrawn.After the study,it proposes targeted improvement and improvement suggestions.First,banks have unique conditions for their industry characteristics.Strengthening bank-enterprise cooperation can benefit both parties.Second,most of the debt-to-equity conversion project funds are through the establishment of equity funds by banks.The sluggish social capital,which is dominated by institutional investors,has dispersed the equity to a certain extent.It can be used as an opportunity to achieve separation between government and enterprises and boost the reform of state-owned enterprises.Third,a special agency for debt-to-equity conversion was established to strengthen the control of risks and the management of equity.Fourth,establish a national debt-equity-to-share trading platform,improve the multi-level capital market,and enable the implementing agencies to withdraw smoothly in the last round of debt-to-equity swaps.Through combing and summarizing the experience andinspiration of the above theoretical and practical cases,relevant conclusions and prospects are drawn.