A Case Research On Debt-to-equity Based On Real Option Of ShunTian Ship Company

According to the data published on the Authoritative website,the credit scale of corporate bonds in 2014 was 1.34 billion yuan,which had risen to 1220.71 Billion yuan in 2018.Some traditional industrial enterprises are facing difficulties due to the huge financial pressure caused by the global economic downturn and high leverage.Even some excellent enterprises will be unable to support the debt pressure and go bankrupt.With the increasing emphasis on the sustainability of development,solving the high financial pressure caused by the high debt is getting more attention.As the main way of deleveraging at present,how to promote the effective implementation of market-oriented debt-to-equity has become a hot topic in theory and practice.The traditional DCF method has the connotation assumption : firstly,managers can accurately estimate the cash flow that the current project can generate in each year of its entire life cycle,and can also determine the corresponding risk adjustment discount rate;secondly,managers have no right to delay decision-making.They must choose or give up immediately.However,due to the unpredictability and complexity of the real business environment,it is difficult for managers to accurately estimate the future cash flow and the corresponding risk discount rate.Moreover,the investment environment is likely to change beyond expectations.it is more conducive to reduce the mistakes by reserving the right of delaying decision-making.From this point,the real option theory is better and provides a new decision-making tool for the decision makers.Firstly,this paper clarifies the concept of real options and concludes that the characteristics of real options can well meet the requirements of strategic decision-making in the uncertain environment.On this basis,this paper put forward the real option strategy.The core of this paper is to try to apply the real option theory to the field of debt-to-equity.ShunTian ship faced bankruptcy in 2016.This paper finds that the ownership structure of ShunTian ship is as follows: the state-owned major shareholder holds the majority of the equity but does not control the actual operation;the management layer actually controls the operation decision of the company and holds a certain amount of shares at the same time.Under this structure,the interest subjects in the enterprise can be divided into management layer,state-owned major shareholders and creditors.In order to pursue the goal of maximizing their own value,the management may make excessive investment behaviors such as related party transactions,which will lead to the improvement of the financial risk of the enterprise and damage the interests of the major shareholders and creditors.Two questions are raised: Was there a serious agency problem? Whether the real option strategy can be used to solve this debt crisis.First of all,this paper explains the causes of the agency problem with the theory of real options: for the agency problem between shareholders and creditors,creditors sell call options to shareholders,and the value of call options will rise with the increase of uncertainty,so shareholders are more motivated to invest in projects with greater uncertainty and risk;For the agency problem between the management and the major shareholders,the management has the exit option,so it also has the motivation to "gamble".If they win,they will get the benefit.And if they lose,they can leave the mess to the state-owned shareholder.Then this paper combs the investment and financing behavior of the company from 2011 to 2014 which shows that there are serious agency problems.At the same time,this paper applies the real option strategy to design the debt restructuring plan,and explains the internal option logic of each link of the restructuring,that is,the decision-making in the previous stage creates opportunities for the decision-making in the later stage and maintain the flexibility of the strategy.In addition,this paper also deduces the option pricing formula of debt-toequity,roughly calculates the theoretical price is 10.77 yuan,which is lower than the actual price.From this point,the debt-to-equity price is unfair to the creditors.As a successful debt restructuring case,ShunTian ship has achieved 100% debt repayment rate and effectively resolved the internal defects of the company.This paper is an attempt to apply the real option theory to debt restructure,hoping this real option strategy will play an enlightening role in the restructuring of other enterprises.