A Case Study Of Zhongjin Gold Market Debt-Equity Swap

Affected by the global financial crisis in 2008,many domestic enterprises stopped production,closed down or fell into financial difficulties.In 2016,to help enterprises to relieve financial pressure,the State Council issued Opinions on Actively and Prudently Reducing the Leverage Ratio of Enterprises and its attachment Guidelines on Market-oriented Debt-to-Equity Swaps of Banks.Government documents above are China’s important policies which guarding against and dissolving the enterprise leverage ratio actively and prudently in a market-based and law-based manner.Compared with policy-based debt-to-equity swaps implemented in the early 20 th century,this time the government only formulated policies and supervised the market,and did not interfere in the determination of implementing institutions,implementing subjects,transaction prices and capital sources of market-oriented debt-to-equity swaps.Since the experimental implement in 2016,market-oriented debt-equity swaps have made some achievements,but the overall progress is still slow.This paper takes Zhongjin Gold,one of the representative enterprises that implementing the innovative debt-equity swap scheme,as a case,analyzing the motivation and implementation effect of its debt-equity swap,and summarizing its successful experience and shortcomings,so as to provide reference for debt-equity swap enterprises with similar difficulties.Zhongjin Gold adopts the "two-step" debt-equity swap mode which is combined with high-quality asset injection and matching fund raising,and its comprehensive and innovative scheme plays a certain exemplary role.Taking Zhongjin Gold as the research object,this paper analyzes the motivation of implementing market-oriented debt-to-equity swap,and evaluates the effect of market-oriented debt-to-equity swap from four aspects: ownership structure,market response,financial performance and financial risk through literature and theoretical research.The results show that external investors can participate in corporate governance and have no influence on corporate control.However,due to their lack of experience in the real industry,their help to corporate governance is limited.Investors do not respond positively to the market-oriented debt-equity swap;the overall financial performance of the company showed an upward trend after the implementation of the debt-equity swap,but the improvement of operating capacity is still insufficient.The financial risk of the company has been greatly improved after the implementation of debt-equity swap.Based on the above evaluation results,this paper summarizes the experience and shortcomings of the implementation of Zhongjin Gold debt-to-equity swap,and puts forward suggestions for listed companies to market debt-to-equity swap: highly leveraged problematic enterprises should consider rationally when choosing debt-to-equity swap,fully consider the actual situation,and avoid short-sighted behavior.In the implementation of debt-for-equity swaps,enterprises choose high-quality debt-for-equity targets to attract high-quality implementing institutions and provide support for equity withdrawal and enterprise operation.After debt-equity conversion,enterprises should strengthen the management of cash flow.The government should timely supplement and update relevant policies and regulations according to the actual implementation of debt-to-equity swaps,providing convenience for debt-to-equity swaps and improving supporting market mechanisms.