Analysis Of The Operation Mode And Effect Of Market-based Debt-to-equity Conversion Of Enterprises

In the current economic situation,the debt ratio of China’s real economy sector has remained high,and the issue of debt is of constant concern to us.Since the launch of the new round of debt-for-equity swaps in the market in 2016,more and more enterprises have tried to use debt-for-equity swaps to reduce leverage,with the types of enterprises gradually expanding from state-owned enterprises to private enterprises,the types of debt gradually expanding from bank debt to operating debt,and so on,industries progressively expanding from construction and non-ferrous metal industries to manufacturing,and participating institutions progressively expanding from asset management companies to private equity funds and other social finance institutions,and overall,the application of debt-for-equity swaps is becoming more widespread.Overall,the use of debt-for-equity swaps is becoming increasingly widespread.For companies,debt-for-equity swaps are a good way of reducing liabilities and improving their financial situation.Sorting out how it works and assessing its effects can serve as a benchmark for other companies to convert debt into equity,and provide a reliable reference for reducing debt-toequity ratios in the real sector.As the leading supplier of cobalt products in China,Huayou Cobalt has gradually transformed its initial non-ferrous metals business into a new energy business by relying on the reliable guarantee of foreign mineral raw materials,implementing clear and correct strategic planning,and seizing development opportunities in the new energy industry.In order to improve its financial situation,Huayou Cobalt swapped debt for equity in the market.This article analyzes the reasons that prompted Huayou Cobalt to carry out this conversion,details its operating model,summarizes its risk management operations and,finally,evaluates the effectiveness of this conversion using event studies and benchmarking.The analysis revealed that Huayou Cobalt’s market-focused debt-to-equity conversion belongs to a "two-stage" model,in which Xinda Xineng was presented as the agency implementing this debt-to-equity conversion,and first,the debt-to-equity conversion was carried out for the subsidiary,with the subsidiary Huayou Quzhou as the springboard for the market-driven debt-to-equity conversion,and the shares held in Huayou Quzhou were then "replaced" by shares in Huayou Cobalt.The shares held in Huayou Quzhou were then "exchanged" for Huayou Cobalt shares and sold on the secondary market.Following the implementation of the debt-for-equity swap,Huayou Cobalt has,on the whole,reduced its liabilities and improved its profitability and operating capacity,but it remains necessary to pay attention to changes in the structure of assets and liabilities in the future;at the same time,this has a positive significance for the company itself,the industry and other stakeholders.Finally,based on the analysis of Huayou Cobalt’s market-based debt-toequity conversion,we have drawn conclusions and revelations,and made some suggestions in terms of optimizing and innovating the way market-based debt-to-equity conversion works,strengthening the responsibility of regulators and expanding market-based exit channels,in the hope of providing references for other companies when choosing market-based debt-to-equity conversion.