Case Study On China Railway’s Marketization Of Debt To Equity Swap

Since the global financial crisis in 2008,China’s corporate leverage ratio has climbed rapidly.The excessively high leverage ratio has a negative impact on the solvency of enterprises,impair the sustainable operation ability and profitability of enterprises,and makes the risks of enterprises increase continuously.At the same time,high leverage also hurt the interests of commercial banks.Non-performing loans of commercial banks continue to increase,endangering the safety of China’s financial market,and even affecting the entire economic system.In this context,in order to reduce the crisis caused by high leverage of enterprises,debt-to-equity swaps,as an effective means of deleveraging,have gradually attracted the attention of the policy side.China issued relevant policies in 2016,marking the official start of a new round of debt-for-equity swaps.By the end of 2019,China’s new round of debt-to-equity swaps had made steady progress,with nearly 170 enterprises having carried out such swaps.Implementing institutions involve a variety of types,including commercial banks,asset management companies and other financial institutions.The participating enterprises have basically achieved the goal of deleveraging,and the debt-to-equity swaps have achieved remarkable results.In terms of funding,more than one trillion yuan has been put in place by the end of2019.It can be said that the performance of China’s new round of debt-to-equity swaps meets expectations and has achieved good results in a short period of time.Taking China Railway Corporation as the research object,this paper uses case study method to study the motivation,effects and advantages of its implementation of market-oriented debt-to-equity swap.First of all,this paper sorts out the relevant theories,and elaborates the research background and significance.Then it reviews the concept and theoretical basis of the debt-to-equity swap,analyzes the fundamental motivation and expected goal of this round of debt-to-equity swap,and sets up the relevant theoretical framework for the case study.Secondly,the paper analyzes the market debt-equity swap scheme of China Railway Corporation.Study the steps,pricing and exit channels of the debt-for-equity program.Through the analysis of the financial situation of China Railway Corporation before the debt-to-equity swap,it is found that China Railway Corporation has some problems such as excessive debt burden and declining turnover capacity.Thirdly,from the perspective of financial indicators and non-financial indicators,this paper comprehensively analyzes the impact of market-oriented debt-to-equity swaps on enterprises,and obtains relevant enlightenment.The purpose of this paper is to provide reference for other enterprises that plan to implement market-oriented debt-equity swap.