A Case Study On Market-oriented Debt-to-equity Swap Of Hualing Steel

The steel industry is one of the most vital industries in China’s industrialization progress.However,from the perspective of the capital structure of China’s steel industry,the excessive assets and the high asset-liability ratio are typical characteristics in steel industry,which lead to the fixed assets investment have a strong stickiness and high financial costs of the company.In October 2016,the government proposed market-oriented debt-to-equity swap policy.Many large-scale steel companies hope to reduce their asset-liability ratio by means of market-oriented debt-to-equity swaps,thereby achieving more long-term and healthy development.This paper analyzes the debt-to-equity swap of Hunan Hualing Steel Co.,Ltd.(hereinafter referred to as: Hualing Steel).On the basis of introducing the domestic and foreign literature on debt-to-equity swaps,the paper first introduces the operation process of Hualing Steel market-oriented debt-to-equity swaps,and investigates the operation status and financial status of Hualing Steel in the company profile.The operation status indicates that Hualing Steel has a good competitive position between the upstream and downstream firm.Moreover,company’s products also have competitive advantages in the market.But the financial status shows that Hualing Steel’s asset-liability ratio is significantly higher than the steel industry average.The financial burden of the enterprise is too heavy.Secondly,in the part of case analysis,the motives of debt-to-equity swap are analyzed from two aspect of internal factors and external conditions.Then in the operation mode,pricing mechanism and exiting mechanism are analyzed.In this part,the operation mode is divided into two type: Issuing stocks for repaying loand and Buying debt for acquiring stock.because the two type have different participants in pricing,the pricing mechanism is also different.After that,the paper analyzed the impact of debt-to-equity swaps on the company and the risks for the implementing agency.The impact on the company mainly includes the improvement of net profit and the decline of asset-liability ratio.However,the incident research shows that the impact of debt-to-equity swaps on the company’s short-term share price is not significant.The risks of implementing agencies include the risk of bad management,capital funds pressure of banks and market risk.Finally,according to the characteristics of Hualing Steel market-oriented debt-to-equity swap case and the current status of market-oriented debt-to-equity swaps,the paper puts forward several research conclusions,including the purposes of market-oriented debt-to-equity swaps is more unequivocal,more flexible operation modes,more innovative exiting mechanisms and so on.Then,combining the shortcomings of the Hualing Steel market-oriented debt-to-equity swap case and how to better promote market-oriented debt-to-equity swap work in the future,I put forward some suggestions.