Research On The "Two-Step" Model Of Market-oriented Debt-to-equity Swap

Under the current economic environment of China’s supply-side structural reform,the work of reducing leverage and reducing debt is being carried out in a way of improving quality and expanding scale.Market-oriented debt-to-equity swap,as an efficient weapon for reducing leverage,has attracted much attention since it was proposed in 2016.Compared to the policy-based debt-to-equity swap,it highlights the role of the market and mobilizes the autonomy of enterprises.However,market-oriented debt-to-equity swap is facing the dilemma of having excessive signed projects and less landing capital.The main reasons hindering its progress are the existence of a series of drawbacks in the pricing,the participation of the implementing agency and the withdrawal of the implementing agency.To solve these problems,the choice of model is crucial.Relevant documents clearly pointed out that we should pay attention to the choice of model,and apply a multi-channel and innovative model to implement market-oriented debt-to-equity swap.The "two-step" model studied in this paper is a new model of market-oriented debt-to-equity swap.It abandons the traditional path of one-step stock conversion,and adopts the "two-step" plan in which the implementing agencies firstly carry out debt-to-equity swap at the subsidiary level and then exchange shares with listed companies.It is more strategically significant.This model uses the approach of problem-oriented to help troubled subsidiaries,thereby to reduce the asset-liability ratio at the level of the consolidated statement of the parent company.So it has a significant effect of reducing leverage.At present,China Heavy Industry corporation,China Railway group Limited,Aluminum Corporation of China and other large enterprises have successfully implemented market-oriented debt-to-equity swap by using this model,but currently there is relatively little research on this model in academia.Therefore,this article hopes to analyze the model to help more companies understand it and use the "two-step" model more effectively,thus promoting the smooth development of market-oriented debt-to-equity swap projects.This paper uses Bibliographic method,Case method and the method of Comparative approach to study the market-oriented debt-to-equity swap model.First of all,the current research situation of debt-to-equity swap at home and abroad is thoroughly introduced,and then China Railway Group Limited,which hasstrong timeliness and typicality of this model,is taken as the example for this research.In the course of the study,based on the capital structure theory,corporate governance theory and signal transmission theory,this paper introduces the main bodies,motivation and process of China Railway Group Limited ’s debt-to-equity swap.And analyzes the reasons why China Railway Group Limited choose this model and the protection effect of this model on implementing agencies,analyzes the process and effect of the model,and then concludes the model’s characteristics,risks and applicability.This paper concludes that the "two-step" model has a positive effect in the application of market-oriented debt-to-equity swap,it greatly solves the problems in the process of the market-oriented debt-to-equity swap.First,the “two-step” model accelerates the landing of funds for market-oriented debt-to-equity swap projects,reduces the financial leverage of listed companies,and improves corporate governance.Second,the “two-step” model enhances the willingness of implementing agencies to participate in market-oriented debt-to-equity swap projects.Third,the “two-step” model provides new ideas for non-listed companies.At the same time,this article also points out that the model still has some risks in pricing,corporate governance,etc.In this regard,this article gives the following suggestions: First of all,for the shares issued to implementing agencies,listed companies can choose preferred shares,and give play to the advantages of preferred shares in this model.Then,in pricing,to make sure the conversion price is more reasonable,the influence of uncertain factors should be reduced and the price adjustment mechanism should be increased.Furthermore,when implementing agencies participate in corporate governance,it is better to clarify the specific rights of debt-to-equity shareholders.At the same time,the directors of debt-to-equity shareholders must be given certain incentives and accountabilities,such as reputation mechanism.Finally,at the national level,top-level designs should be optimized,such as the establishment of a market-oriented debt-to-equity trading market and the benefits of tax.However,companies that implement debt-to-equity swap should be fully aware that market-oriented debt-to-equity swap is just a tool for temporarily improving the companies’ situation.The companies still need to seize the opportunity to inject high-quality assets and improve corporate governance to help themselves develop upward.