A Case Study Of China Railway’s Market-oriented Debt-to-equity Swap Under The Deleveraging Policy

China’s economic development has entered a golden era since the reform and opening up and"China’s speed"has been heard all over the world.However,as the economy grows so quickly,some hidden problems are emerging.Due to the characteristics of the industry and other reasons,many enterprises have more debt,resulting in high leverage operation.So the financial crisis is imminent.With the transformation of China’s economic growth model,the previous model of relying on investment and leverage to drive rapid economic growth has become unsustainable.Quality is the premise of sustainable development.The supply-side structural reform proposed in 2016 also shows the determination of the country to adjust the development model and pay attention to the quality of development.The excessive leverage ratio of non-financial enterprises has become an obstacle to their development path and a threat to the healthy development of the national economy.How to help enterprises increase effective supply,revitalize stock assets,reduce leverage ratio,optimize the industrial structure and so on has become a major national problem to the whole country.At the end of the 20th century,Under the dual pressure of the Asian financial crisis and the high non-performing loan ratio of the four state-owned commercial Banks,four asset management companies were established in China.As the implementing agency of debt-equity swap,the establishment funds are from the national finance.Debt-for-equity swap has been widely used as a policy tool to help state-owned enterprises get rid of poverty and become rich,reduce the loan ratio of state-owned commercial Banks,and maintain the stable operation of the macro economy.The experience of the last round of debt-to-equity swaps also provides experience for solving the problem of high corporate leverage in the new economic situation.Premier Li ke qiang has made it clear that corporate leverage can be reduced through market-based debt-for-equity swap in March 2016.October 11,2016,The state administration of industry and commerce issued two opinions in quick succession—opinions on actively yet prudently reducing corporate leverage ratio and guiding opinions on the conversion of creditor’s rights to equity in market-oriented Banks.The new round of market-oriented debt-to-equity swap is an optimization and innovation of the previous round of policy-based debt-to-equity swap.It makes use of the market to allocate resources,weakens the position of the government,respects the will of both sides of the implementation,and does not give opportunities to―zombie enterprises‖,thus providing opportunities for enterprises in temporary difficulties but with development prospectsDuring the writing period of this paper,the tide of economic globalization swept the world,and China’s economic development entered the critical stage of transformation.Over the past four decades of reform and opening up,China has become the world’s second largest economy.But the quality of economic development cannot match the speed of economic development.With the advance of supply-side structural reform in 2016,―the three cuts,one cut and one supplement‖have been implemented and achieved remarkable results.This paper takes China railway group limited as a case of market-oriented debt-to-equity swap under the deleveraging policy.As a leading company in the construction industry,China railway ranks the 55^th in the 2019 Fortune global 500 list and the 7^th in the Fortune China 500 list.Thus,China railway enjoys a good reputation both at home and abroad.China railway’s experience in market-oriented debt-to-equity swap can provide reference for the following companies.At first,the paper introduces the background and research significance of the writing,and sorts out related literatures of deleveraging and market-oriented debt-to-equity swap at home and abroad.Next,it is the theoretical foundation of the article.The paper expounds the meaning of deleveraging and market-oriented debt-for-equity deleveraging reasons and methods as well as the characteristics and theoretical basis of this round of market-oriented debt-for-equity swap.The paper makes a comparative analysis of the two rounds of debt-to-equity swaps,focusing on the marketization of the implementation path,the diversification of the implementation subjects and the legalization of the implementation process.Then,this paper describes the company profile of China railway and the process of deleveraging,from which case analysis is carried out.This paper analyzes the case from four aspects:the reasons for the deleveraging of China railway,the characteristics of the choice of the deleveraging method,and the changes of the stock price after the implementation of the market-oriented debt-to-equity swap.At last,the paper puts forward the inspiration and countermeasures.Through the above analysis,this paper believes the market-oriented debt-to-equity swap of China railway has effectively reduced the asset-liability ratio,which decreased from 79.89%to 76.43%.At the same time,the allocation of resources is optimized,and the supervisor and director dispatched by the implementing agency to participate in corporate affairs can improve corporate governance.But on the other hand,because the stock has a certain unlocking period,it is uncertain that whether the enterprise’s future appreciation or not.Investors may face greater investment risks after the market-oriented debt-to-equity swap.Therefore,in the process of operation and development,enterprises should choose a reasonable capital structure and balance between debt capital and equity capital.For excessive leverage ratio,enterprises should choose a reasonable way to deleverage,not deleverage blindly.At the same time,enterprises should make full use of the government’s deleveraging support policy and the market-oriented debt-for-equity resource allocation function to revitalize enterprise assets.Each subject should also pay full attention to the changes in enterprise value after the market-oriented debt-to-equity swap,and take timely measures to effectively avoid relevant risks.Each subject should also pay full attention to the changes in enterprise value after the market-oriented debt-to-equity swap,and respond to them in a flexible way to reduce investment risks.This paper combines the historical background and national policies to analyze relevant cases,which has certain time significance.Although debt-to-equity swap has been adopted by many countries abroad,there is only one practice in China,namely the policy-based debt-to-equity swap implemented in the 1990s.However,there are many differences between the market-oriented debt-to-equity swap and the previous debt-to-equity swap,which is still in the exploratory stage.With the continuous attempts to adopt this new model in various fields,the application scope of market-oriented debt-equity swap is also expanding.After understanding the history of debt-to-equity swaps and consulting many foreign cases,the author analyzes the cases in combination with China’s special economic situation and national policies to provide Suggestions for the steady promotion of market-oriented debt-to-equity swaps in China,which has certain practical significance...