The Study Of Chinese Debt-Equity Swaps

Debt-Equity Swaps as a way to solve commercial banks' high non-performing asset ratio and companies' high leverage ratio,has been used in many countries.At the end of the 20 th century,China implement the first round of policy Debt-Equity Swaps,and established four Assets Management Companies using fund from the Ministry of Finance.The AMC bought non-performing loan from four state-owned commercial banks and became shareholders of the state-owned enterprises.The main purpose is to strip commercial banks' bad assets and reduce state-owned enterprises' debt and help them to finish the reform.In 2016,the restarted market-based DebtEquity Swaps in China will broaden its implement scope and makes market the decisive role.It is designed to help companies to deleverage and improve their governance structure and operating efficiency.This article first concludes foreign literatures about Debt-Equity Swaps and corporate governance structure,and reviews studies about China's first round of Debt-Equity Swaps.After comparing the background and implement conditions of China's two rounds of Debt-Equity Swaps,some features of the new round are presented.Then this article analyzes the possible influence and risks of the DebtEquity Swaps from the perspectives of companies,commercial banks and China's economy.For companies,this policy would improve their financial conditions and modify their financial statements.The reduction of the debt and the participation of new shareholders can also bring changes to their governance structure and operating efficiency.For commercial banks,this policy can either reduce their lossesresult from the high non-performing ratio,or bring more losses because the companies' operating risks are transferred to them.For China's economy as a whole,the policy can bring vigor to the economy and achieve intended goals only if there are matched laws and rules to ensure its implement efficiency.As Chinese biggest private shipbuilding enterprise and the representative of the new round of Debt-Equity Swaps,China Huorong Energy Company Limited is suffering big financial problem due to the industry downturn.This article will analyze the reasons why this company can use Debt-Equity Swaps as a solution base on its financial and operating conditions.After considering its Debt-Equity Swaps plan,here are the predictions: If the plan could be implemented successfully,the company's asset-liability ratio would fall from 132% to 60%,which is much more reasonable.What's more,with the participation of new shareholders,the company would improve its governance structure and supervisory mechanism,and accelerate its transformation towards energy industry.Finally,we can conclude from the case of Huarong that companies should find ways to solve their problems actively.Debt-Equity Swaps just has subsidiary effects,it can not be viewed as debt forgiveness,and it can not solve all problems faced by companies.Companies can only improve their operation and profitability through their own efforts.In order to increase the efficiency of Debt-Equity Swaps and support Supply-side Structural Reform,China should also improve relative laws and regulations,bring the market into full play,and encourage banks to supervise companies' operation.