A Case Study Of Huayou Cobalt Industry Market Bonds

Since the global financial crisis at the beginning of the 21 st century,the overall leverage ratio of our country's economy has continued to rise.The continuous increase of corporate debt has brought about business risks and hindered economic and social development.In this context,our country proposed supply-side reforms in 2015.General Secretary Xi Jinping clearly stated the "five tasks of reducing production capacity,destocking,deleveraging,reducing costs,and making up for shortcomings",which is "three eliminations,one reduction and one supplement".In October 2016,in order to accelerate the pace of corporate deleveraging,the State Council issued the "Guiding Opinions on Debt-to-Equity Swap of Market-oriented Banks",marking the beginning of a new round of debt-to-equity swaps.Different from the previous round of policy-based debt-to-equity swaps,this debt-to-equity swap is a market-oriented,legalized debt-to-equity swap.The scope of the equity conversion is wider,and private enterprises have also been included.The reasonable implementation of market-based debt-to-equity swaps for companies in financial difficulties can ease their debt pressure,optimize corporate capital structure,and promote the sound development of com panies,thereby adding vitality to our country's economic development.Based on the case analysis method,literature research method,financial indicator analysis method and event research method,this paper takes Zhejiang private enterprise-Huayou Cobalt as the case study object,and analyzes its use of the "two-step" model for debt-to-equity swaps.This paper explores the background of Huayou Cobalt's implementation of debt-to-equity swaps,the choice of the "two-step" model,the implementation process,the motivations for the implementation,and the effects of the implementation of the debt-to-equity swap.Based on related concepts and supply-side structural reform theory,trade-off theory,prioritized financing theory,and signal transmission theory,this article elaborates on the background,motivations,and "two-step" model selection of Huayou Cobalt's debt-to-equity swaps to reduce leverage.This article also analyzes the changes in financial performance,non-financial performance and market performance after the implementation of debt-to-equity swaps,and finally summarize the case enlightenment.The paper found:(1)Huayou Cobalt's market-oriented debt-to-equity swap is the result of the joint influence of national policy support and enterprise development needs.(2)Compared with the traditional model,the "two-step" market-based debt-to-equity swap model has certain advantages.(3)The implementation of debt-to-equity swaps can enable enterprises to reduce leverage and improve their debt structure.(4)The implementation of market-based debt-to-equity swaps does not necessarily bring positive market performance impacts to companies.Based on this,the case enlightenment is drawn:(1)The “two-step” debt-to-equity swap model is popular.(2)Companies can seize the policy dividend to implement market-based debt-to-equity swaps to reduce leverage.(3)Enterprises should establish a long-term mechanism to reduce leverage.(4)Investors should conduct rational investment through multiple investigations.(5)Private enterprises in emerging industries can use debt-to-equity swaps to reduce financial risks.