Case Study On Debt-to-equity Transfer Of Huarong Energy Ltd Company

The debt-to-equity swap means that state-owned commercial banks will resold the debts owed by state-owned enterprises to state-owned financial asset management companies at a discount.Meanwhile,the financial asset management companies will then convert the debt they acquired into holdings of state-owned enterprises.In this manner,the policy can help state-owned enterprises to implement reforms.In 2016,based on the spirit of “high productivity,high inventory and high leverage”,China began to implement a new round of market-based debt-to-equity swaps.Under this circumstance,this new round of debt-to-equity swaps has expanded the scope of participating companies and has helped these participant companies to leverage.In addition,the new policy also strengthened the operating efficiency of enterprises,improved the corporate governance structure and reduced potential economic risks.This thesis first summarizes foreign references on the debt-to-equity swaps and corporate governance structure and reviews the first research on debt-to-equity swaps in China.Then it compares the Chinese two rounds of debt-to-equity swaps from their background and implementation conditions of debt-to-equity swaps.This thesis also highlights the characteristics of the new round of debt-to-equity swaps.Then,it analyzes the impact and risks of a new round of debt-to-equity swaps by standing in the positions of enterprises,creditor banks,and the national economy.The case of Huarong Energy Co.,Ltd.(formerly Rongsheng Heavy Industry Group Holdings Co.,Ltd.)mentioned in the thesis is the largest civilian shipbuilding company in China and also the representative company for the new round of debt-to-equity marketization options.Due to the continuing downturn in the industry and investment mistakes,the company is in serious financial crisis.This article will prove the feasibility of Huarong Energy participation in a new round of debt-to-equity transfer from two aspects of Huarong Energy:corporate finance and operations.Meanwhile,the thesis will also make a prediction based on the debt-equity-to-equity swap adopted by the company.If the debt-to-equity swap is successfully implemented,the Huarong's asset-liability ratio will be reduced from 144.88% to 69.17%.At the same time,changes in the ownership structure and the addition of new shareholders will also ameiliorate the corporategovernance structure,improve the company supervision and management,and provide financial support for corporate transformation.Finally,based on the case of Huarong Energy Company Ltd,it can be concluded that the new round of market-based debt-to-equity swaps is not a “free lunch” and companies need to actively seek their own ways to escape from the predicament.Moreover,Debt-to-equity swaps can only be regarded as the crutches that help companies get out of their difficulties.In other words,Debt-to-equity swaps are simply a means of exempting debt,and they cannot place all their hopes for corporate development on debt-to-equity swaps.Only if companies strengthen the rationality of their own structures and improve the management level and operating efficiency of enterprises can they complete the transformation that enterprises should have.At the same time,the state should improve relevant laws and policies to support the implementation of debt-to-equity swaps so as to ensure the efficiency of the implementation of debt-to-equity swaps.What is more,they should also encourage creditor banks and implementing agencies to supervise enterprises and give full play to market roles.Only in this way can they complete supply-side reforms in China.