Study On The Financial Impact Of Hualing Steel’s Market-oriented Debt-to-equity Transfer

As an important driving factor of economic development,the steel industry shoulders the mission of ensuring high-quality economic development and promoting economic structural stability,which has attracted increasingly close attention by the Chinese government.Supply-side structural reform has caused the wave of The Times,the measures to cut overcapacity have been fed back with positive results,awakening the recovery of demand of the steel industry and stimulating the upward and dynamic development of the industry economy.But opportunities and challenges coexist,and the high leverage problem of steel enterprises is prominent.After the asset-liability ratio exceeded 60% in 2009,it showed an upward trend of year by year,and steel enterprises assumed the financial pressure and risks brought about by high yield and high leverage,which troubled their own development to some extent.In order to enhance the development strength of enterprises,some steel enterprises expand excessive scale,high debt,causing debt risks,Warin Steel is a typical example.As a leading iron and steel enterprise in Hunan Province,Valin iron and steel products have diversified structure,wide capacity scale,gradual expansion of market share,good development prospects and core competitive advantage.In order to further enhance the external competition of the enterprise and release the internal vitality of the enterprise,the company has increased the research and development density in the past decade and is committed to product innovation and upgrading,requiring more funds to maintain the healthy operation of the company.Its excessive reliance on bank borrowing in the capital market has affected the financing results of enterprises,the continuous reduction of equity financing,and increased the climbing speed of the asset-liability ratio,specifically showing the continuous high debt state of more than 80% from 2015 to 2017,bearing huge financial pressure.In 2016,Valin Iron and Steel assets were about 116 billion yuan,relatively stable scale and strong profitability in assets,but its total liabilities were about 101 billion yuan,with a debt ratio of 86.9%.The interest expenditure brought by high leverage operation continuously eroded cash flow,enterprises cannot meet the capital needs of survival and development,debt repayment pressure is huge,and the situation is very severe.In order to break free of financial difficulties,in December 2018,Valin Steel decided to inject incremental assets into the same frequency as the debt-for-equity swap,and establish the organizational vision of the overall listing of the main steel industry.The implementation of debt-for-equity swaps to help enterprises prevent debt risks,enhance capital strength,and improve their ability to resist the cycle downturn and sustainable profitability is an important measure to actively and steadily reduce the leverage ratio.Valin steel debt to equity at the same time according to their own capital needs and operating conditions of debt-to-equity scheme design,in strict accordance with the market-oriented principles of the selection of underlying assets,pricing mechanism on the basis of certain innovation,its introduction of multiple capital entities,joint pricing,fully meet the interests of stakeholders,the case is typical and also innovative.Therefore,this paper takes Valin Iron and Steel as the research object,and takes the background of reducing leverage and the characteristics of high debt of iron and steel enterprises as the starting point.Based on the changes of assets-liability ratio,cash flow and other financial performance before and after debt-for-equity conversion,this paper analyzes the influence of debt-for-equity conversion on capital status,profitability and other core indicators,and further draws the conclusion that the implementation of debt-for-equity conversion is helpful to stabilize the optimal capital structure and promote create better value.At the same time,taking the debt-to-equity scheme design as the core,this paper summarizes its successful experience from the perspective of the selection of the target enterprise and the protection of the shareholders’ interests,and tries to help the enterprise to better enhance its sustainable profitability and capture its core competitiveness.And for other market-oriented debt to equity related enterprises to provide reference and reference.