Study On The Application Effect Of Market-oriented Debt-to-equity Swap In China Railway Group Limited

Affected by the global financial crisis in 2008,many enterprises have problems such as excessive debt,increased financial leverage and reduced profitability which seriously affect social economy,the overall social leverage ratio kept soaring from 2008 to 2016,given this,debt-to-equity swap must return to the market with a whole new look.At a press conference about the new round of debt-to-equity swap on June 23,2016,the NDRC said:This round of debt-to-equity swap should fully reflect the marketization in enterprise selection,assignment price and the exit method of equity.Then,the State Council issued two important documents on October 10,2016,the documents clarify that this round of debt-to-equity swap is based on marketization and legalization,which aims to reduce the asset-liability ratio of enterprises and banking system risks,promote the reform of internal governance structure of enterprises,improve the operating efficiency and realize the long-term development of enterprises.The second round of market-oriented debt-to-equity swap was officially launched.This paper selects the market-oriented debt-to-equity swap of China Railway Group,a large central state-owned enterprise,as a case,studies its application effect.First of all,the paper elaborates the background and meaning of the study,classifies and concludes domestic and foreign academic research results.Secondly,it describes the definition,main modes,relevant theories and analytical methods of debt-to-equity swap,compares and analyzes the similarities and differences between two rounds of debt-to-equity swaps in China,it provides theoretical support for the study.Thirdly,the paper introduces and analyzes the market-oriented debt-to-equity swap of China Railway Group,mainly introduces the company’s basic situation and the background and purpose of implementing debt-to-equity swap,and it finds that before implementing the debt-to-equity swap,China Railway Group has problems such as excessive debt,low profitability and tight cash flow.Specific implementation plan including target enterprise,implementing institution,pricing mechanism and exit method are also introduced in this paper;Through the changes in financial and non-financial indicators before and after the implementation of debt-to-equity swap,this paper analyzes application effect of the selected case from four dimensions:enterprise financial,enterprise value,enterprise management,and possible risks,the paper finds that the implementation of debt-to-equity swap can effectively reduce the enterprise’s financial burden,enhance enterprise value,partly improve enterprise management ability,it also needs to prevent the risks that the rights and interests of implementing institutions are not guaranteed and the enterprise will borrow again.Finally,the paper proposes several feasible advice on possible risks,and gets some inspiration from this case,expects to provide some reference for the subsequent state-owned enterprises to implement debt-to-equity swap.