Analysis On The Motivation And Performance Of YH Corporation Market Based Debt To Equity Swap

In recent years,Chinese enterprises have been striving for rapid expansion under the backdrop of rapid economic development,resulting in the continuous increase of their assetliability ratio.With China’s economy entering a new normal and facing increased downward pressure,financing channels for enterprises are becoming tighter.As a result,more and more enterprises have been unable to repay their debts on time due to excessive expansion and other reasons,leading to enormous financial pressure and even bankruptcy risks.Debt-toequity swaps,which were used to handle non-performing loans of banks and rescue stateowned enterprises in the 1990 s,have outstanding advantages in disposing of corporate debt crises and reducing leverage ratios.In 2016,the State Council of China issued the "Opinions on Actively and Steadily Lowering Enterprise Leverage Ratios",proposing to carry out market-oriented debt-to-equity swaps under the guidance of marketization and the rule of law.Against the macroeconomic background,it is imperative to explore the implementation effects of a new round of market-oriented debt-to-equity swaps in an orderly manner to effectively lower the enterprise leverage ratio and prevent and resolve financial risks.This article examines the market-oriented debt-to-equity swap(DOE)case of YH Company,a leading potassium fertilizer manufacturer in China,which faced a debt crisis due to unsuccessful diversification strategies and investments in various chemical projects.The company was able to overcome its financial difficulties by successfully implementing a market-oriented DOE in 2020.This article analyzes the reasons why YH Company chose to carry out a market-oriented DOE and assesses the effectiveness of this strategy.The article first introduces the background of the new round of market-oriented DOE,and constructs an analytical framework through a review of relevant literature on marketoriented debt-to-equity swaps.The article then describes YH Company’s situation and the market-oriented DOE plan it implemented to address its debt crisis,along with the challenges encountered during the implementation process.Due to unsuccessful diversification strategies,YH Company faced the risk of insolvency.It then opted for a market-oriented debt-to-equity swap,which lowered the company’s debt and optimized its financial situation.The article then analyzes the reasons why YH Company chose to implement a market-oriented DOE.By considering the industry background and YH Company’s specific situation,the article analyzes the factors that led the company to opt for a market-oriented DOE.Additionally,the article assesses the effectiveness of the strategy by analyzing YH Company’s market and financial performance.In terms of market performance,the article uses the event study method to examine the short-term impact of the marketoriented DOE on the company’s stock price.In terms of financial performance,the article analyzes YH Company’s financial indicators from its 2016 to 2022 third-quarter financial reports and compares them with those of the fertilizer and agrochemical industry to evaluate the effectiveness of the market-oriented DOE.Finally,the article draws conclusions and offers insights and prospects based on the analysis results.Based on the above analysis of the motives and performance of YH Company’s marketoriented debt-to-equity swap,the following research conclusions are drawn.Overall,the market-oriented debt-to-equity swap by YH Company has a positive impact on the company’s own business development,playing a positive role in short-term stock price improvement,improvement of financial conditions,and getting rid of financial difficulties.It has achieved good economic results.Firstly,YH Company’s market-oriented debt-toequity swap has multiple motives,influenced by factors such as the chemical industry,social benefits,company shell protection strategy,improvement of financial conditions,and improvement of corporate governance ability,YH Company chooses to carry out marketoriented debt-to-equity swap to cope with the debt crisis.Secondly,the market-oriented debtto-equity swap of YH Company overall performs successfully,effectively reducing the company’s asset-liability ratio and improving financial performance indicators.In terms of market performance,the market-oriented debt-to-equity swap has a positive effect on the company’s stock price in the capital market;in terms of financial performance,it has varying degrees of improvement in its debt-paying ability,profitability,and growth ability,but the improvement in operating ability is not significant.Thirdly,YH Company still has room for improvement in protecting the rights and interests of small and medium shareholders,the mechanism of stock rights exit,and preventing corporate litigation risks during the marketoriented debt-to-equity swap process.After the enterprise carries out the market-oriented debt-to-equity swap,it should explore the establishment of accountability mechanisms,strengthen the protection of the rights and interests of small and medium shareholders,actively innovate the mechanism of stock rights exit,enhance the attractiveness of the market-oriented debt-to-equity swap scheme,and improve the dialogue and negotiation mechanisms of interests from all parties to strive for the support of multiple parties and mediate the interests of all parties,which is an important support for the implementation of market-oriented debt-to-equity swap.At the same time,enterprises should take active measures,based on their own advantages,reassess the development trend of their industry,adjust their development strategies,and take targeted measures to solve the core contradictions of the enterprise.