Valin Steel's Market-oriented Debt-to-equity Swap Risk Research

Iron and steel industry is one of the pillar industries in the process of industrialization in China.In view of the steady and rapid development of China's economy,the demand for steel in the domestic market in the middle and late period of industrialization is huge,and the market share of the steel industry has a large space for development.However,China's iron and steel industry profits have not been significantly increased,overcapacity,leverage ratio is too high and the industrial structure is not reasonable is still leading to the iron and steel industry profit thin main reasons.In the 1990 s,China has introduced relevant policies represented by the policy-based debt-for-equity projects to rectify the high leverage ratio of large and medium-sized state-owned enterprises,but they only showed short-term economic effects.Later,enterprises once again fell into financial difficulties such as high financial leverage ratio and unreasonable capital structure.In 2016,Premier Li Keqiang launched a new round of market-oriented debt-to-equity swap.By constantly improving relevant policies on the basis of policy-based debt-to-equity swap,and highlighting the operational principles of "marketization" and "legalization",this move quickly drew wide attention from all walks of life.With the support of national policies,the process of market-oriented debt-to-equity swaps has been continuously promoted,and more and more state-owned enterprises have successively participated in the implementation of debt-to-equity swaps.Valin Steel,as a representative enterprise in the steel industry,also faces a certain degree of potential risks in the implementation of the debt-to-equity swap.On the one hand,Valin Steel's market-oriented debt-for-equity swap project is selected as the research object,and the risks and risk management in the process of market-oriented debt-for-equity swap are studied from the perspective of each participant,which can supplement the deficiencies of existing literature in this regard.On the other hand,the market-oriented debt-for-equity swap project of Valin Steel has a demonstrative significance in promoting the nationwide market-oriented debt-for-equity swap work,and the study of the risks in the implementation of market-oriented debt-for-equity swap can guide the smooth implementation of debt-for-equity swap to a certain extent.This paper is mainly divided into six parts.Based on the case study method and with the support of relevant literature and theories,this paper introduces the market-oriented debt-for-equity swap project of Valin Steel,and analyzes the potential risks in the implementation process of debt-for-equity swap.It is found that there are some risks in the process of debt-to-equity swap,such as unreasonable valuation of underlying assets,equity effectiveness of debt-to-equity swap,loss of state-owned assets and poor exit of equity,etc.,and the reasons for the potential risks are analyzed.Finally,the risk management measures in the implementation process of debt-equity swap are proposed,including:optimizing the selection of market-oriented debt-equity swap enterprises;Strengthen the follow-up operation and equity management,improve the capital market;Broaden the market financing channels and strengthen the establishment of the third party supervision and management mechanism.