Case Study On Market-oriented Debt-to-equity Swap Of CSSC Holdings

Since the onset of the financial crisis in 2008,the continuous implementation of the quantitative easing monetary policy and the large-scale construction of infrastructure have promoted the rapid growth of the Chinese economy,but at the same time it has also made the problem of overcapacity increasingly serious.The leverage ratio of the physical sector,especially the large state-owned enterprises,has been increasing year by year.Under the circumstances,market-based debt-to-equity swaps have emerged as a debt restructuring tool that effectively resolves debt and reduces leverage.Different from the policy-based debt-to-equity swap carried out in China at the end of last century,this round of debt-to-equity swap lays more emphasis on the principle of marketization.The selection of participants,the specific model of debt-to-equity swap and the pricing are all carried out in a market-oriented way.The government is more likely to assume the role of initiator and regulator,and will no longer guarantee the outcome of debt-to-equity swaps.From this point of view,this round of debt-to-equity swaps is essentially different from the previous round of policy-based debt-to-equity swaps.It can not only be a financial rescue for the enterprise,but also is expected to really improve the operation and governance of companies,and promote the enterprise to achieve a virtuous cycle of development.In this context,this article taked CSSC Holdings,one of the first companies that tried market-oriented debt-to-equity swaps as the research object,hoping to judge the impact and actual results of market-oriented debt-to-equity swap on the implementation enterprises,and started with the implementation plan of CSSC Holdings’ debt-to-equity swap,summarizing the risks brought to the implementation organizations due to the loopholes and deficiencies of the plan.And then it put forward suggestions on optimizing market-oriented debt-to-equity swaps,thereby providing experience and reference for the better implementation of subsequent market-oriented debt-to-equity swaps.In terms of the thinking of writing,this article first sort out the current situation of domestic and foreign market-oriented debt-to-equity swaps,and summarized the definition and characteristics of market-oriented debt-to-equity swaps,as well as the theoretical basis related to this article,and then it introduced in detail the implementation process of CSSC Holdings’ debt-to-equity swap,highlighting it’s market-oriented nature.Then,it studied the impact of market-oriented debt-to-equity swaps on enterprises from the aspects of short-term market reaction,medium-and long-term financial effects,and corporate governance.It was found that even if the market is not optimistic about the market-oriented debt-to-equity swap in the short-term,the implementation of the debt-to-equity swap has indeed helped the company to comprehensively improve its financial situation,making the company’s solvency,operating capacity and profitability has greatly improved compared with the same industry;In addition,although the debt-to-equity swap didn’t change CSSC’s absolute holding position in CSSC Holdings,it has enriched CSSC Holdings’ equity structure and achieved shareholder diversification,which can play a role in optimizing corporate governance.Finally,based on the analysis of the previous debt-to-equity swap plan,this article pointed out the three major risks that the debt-to-equity swaps brought to implementing agencies: the uncertainty of investment income,the inability of shareholders’ rights and interests,and the difficulty of smooth exit from debt-to-equity swaps.Corresponding suggestions were put forward to explore a more effective mechanism and protect the rights and interests of the implementation agencies,thereby providing experience for the follow-up implementation of debt-for-equity projects,and promoting the supply-side reform as well as the deleveraging process of the real sector.