A Study On The Risk Of Commercial Bank's Market-oriented Debt-to-Equity

Since 2012,China's economic development has entered a new stage of "from quantity to quality".Problems such as slowing down of the economic growth,overcapacity and excessively high leverage have become the major potential dangers to China's sustainable economic development and financial stability.In this regard,the State began to implement the supply-side structural reform,adopting the policy of cutting overcapacity,destocking,deleveraging,reducing corporate costs and shoring up weak spots.Synchronously,the market-oriented debt-to-equity starts.The new round of debt-to-equity swap has a series of optimization and new features,but still faces many complex risks.The success of the debt-to-equity swap matters a lot to the benign development of the high-liability enterprise and the transformation of the commercial banks.Therefore,in this new background,the comprehensive study of the risk of the market-based debt-to-equity swap is very important.After literature study,this paper firstly combs the basic theories of debt-for-equity swap and explains its basic definition as well as the typical model,then analyzes and compares the similarities and differences between China's two debt-for-equity swaps involved in this paper,which lays a foundation for the risk analysis of this market-oriented debt-to-equity swap.This article selects the implementation of debt-to-equity swap of Yunnan Tin Company Group Limited(YTC)(hereinafter referred to as the "YunXi Group")as a case study.As the first debt-for-equity swap case among local state-owned enterprises after the issue of Guidence on Market-oriented Debt-for-equity Swap on Banks,it is of great significance in a broad sense in analyzing how to choose the debt-for-equity swap enterprises and the operation mode of debt-for-equity swap as well as the equity withdrawal mechanism.In addition,different from previous theoretical studies,this paper goes deep into the "fund mode" of market-oriented debt-for-equity swap and comprehensively analyzes the possible risks in the whole process(from preparation to withdrawal)from the perspective of commercial banks.According to the research,in the case of the YunXi Group,CCB mainly faces the following risks: 1.In the early preparatory stage,risks lies in the choosing the target for the conversion of shares and raising funds.In fact,the latter one runs through the whole debt-to-equity conversion;2.In the operation stage,due to the lack of policies and relevant experience,CCB is faced with pricing and compliance risks and capital adequacy ratio impact risks;3.In the late stage,the bank faces the risks of capital security,effective management and income acquisition from the use of the invested capital to the regular income of the bank,among which the most serious problems come from the risk of the exit mechanism.Based on the analysis above,this paper concludes that during the constant marketization of the debt-to-equity,the "fund mode" dominated by the commercial banks has been widely used while the commercial banks are faced with risks from social financing,choice of subject,participation in enterprise management and exit mechanism which may exert influence on the progress of the debt-to-equity swap and the later exit and investment income of the conversion.In view of this those,the author argued that the following work should be considered: On the one hand,commercial banks should strengthen the design of social financing,enhance the ability of identifying the target company of debt-to-equity swap,actively participate in the improvement of enterprise value,and enrich the withdrawal mechanism of debt-to-equity swap.On the other hand,as the main body of management,commercial banks need to improve the project management system of debt-to-equity swap,strengthen the awareness of rights and responsibilities of all parties,and build a comprehensive risk management system of debt-to-equity swap.Finally,from a long-term perspective,commercial banks should strengthen their own professional skills and personnel training in debt-to-equity swap,and increase innovation in business models and product design related to debt-to-equity swap.In this way,we will strengthen the risk management in the market-oriented debt-to-equity swap of commercial banks,help improve the market-oriented debt-to-equity swap model,safeguard the interests of all parties,and achieve more efficient and high-quality economic restructuring.