Research On The Factors Affecting The Financing Structure Of China Railway Group Limited

With the continuous advancement of Chinese state-owned enterprises mixed ownership reform,the operating conditions of many state-owned enterprises have been improved to varying degrees,but there are still many problems in the reform,such as the common problem of most state-owned enterprises;the financing structure with high debt characteristics.Since the establishment of many state-owned enterprises,they have adopted debt management as the company’s main business model.This business model has realized the rapid accumulation of the company’s capital to a certain extent,accelerated the development of the company,and also prompted the state-owned enterprises to face "face the embarrassing situation that the increasing hardship of management.Tension of capital flow and the severe limited expansion".In the future,the focus of Chinese economic development shifts keeping quality to quality.At present,the financing structure of high-debt characteristics of state-owned enterprises is no longer in line with the trend of future economic development.Therefore,it is necessary to study the factors affecting the financing structure of state-owned enterprises and analyze the specific influencing factors,so as to propose targeted recommendations to optimize the unreasonable financing structure of state-owned enterprises.China Railway Group Limtied(CRGL)is a representative large-scale state-owned enterprise in Chinese construction industry.Like most state-owned enterprises,financing structure of CRGL has obvious high debt characteristics.As of the end of 2017,asset-liability ratio of CRGL was as high as 79.89%,while the return on total assets was only 0.38%,and the return on net assets was as high as 3.2%,CRGL used nearly 10 times of financial leverage.The highly leveraged business model has seriously affected operating performance and development prospects of GRGL,and also brought tremendous pressure on the company’s cash flow.Why does CRGL choose a highly indebted financing structure?What factors determine CRGL must use debt management as its main business model?This paper analyzes the factors affecting the corporate financing structure from the perspectives of CRGL’s corporate profitability and operational capability,the characteristics of state-owned property rights,and the characteristics of the construction industry,and then from the perspective of the dual performance assessment of the CSRC and the SASAC.Analyze the impact of management decisions on corporate finance structure.Through the analysis of the case,it can be concluded that CRGL’s high-debt financing structure stems from the following reasons:First,the rapid growth of CRGL’s annual operating income requires the company to substantially increase its assets as support,while the company’s profitability and operational capability are weak.Endogenous financing has limited support for enterprises,and capital demand can only be met by external debt financing.Second,the business characteristics of the construction industry make it difficult for the company’s own funds to meet daily production and operation needs.The construction industry as a whole shows high Asset-liability ratio;Third,the financing advantage of large state-owned enterprises determines that CRGL can achieve large-scale debt financing,thereby amplifying the company’s high debt financing structure effect;Fourth,CRGL faces the dual performance of the CSRC and the SASAC every year.Therefore,CRGL Management adopted a highly indebted business model as a countermeasure under multiple demands such as market and policy.,Considering the impact of the above four major influencing factors on financing structure of CRGL and its practical operability,this paper suggests that CRGL should take the company’s profitability and operational efficiency as the main route to enhance the company’s operational capability and increase equity capital as an auxiliary route.To build a system to improve the high debt financing structure of enterprises.On the main route,the gross profit margin of infrastructure business has the greatest impact on the profit of company.CRGL’s profitability and operating efficiency mainly depend on improving the gross profit margin of infrastructure business.The specific measures are as follows:First,increase the proportion of roads and municipal projects with higher gross profit margin in infrastructure business,and reduce the proportion of railway business with lower gross profit margin.Second,from construction to management,reduce the proportion of employees with the following qualifications.Enhance the value of the company;Third,introduce strategic investors to increase ROE and earnings per share through"mixed reform".The specific measures of the auxiliary route include asset securitization,PPP issuance and debt-to-equity swaps.Asset securitization can improve the company’s operational capacity and reduce corporate financing leverage.PPP is issued by off-balance sheet financing to transfer liabilities to the off-balance sheet.Reducing the leverage ratio in the table improves the corporate financing structure.Debt-to-equity swaps reduce leverage by converting liabilities into equity capital.