Research On The Motivation And Effect Of Debt To Equity Swap Of Anhui Construction Engineering Group Under The Background Of Deleveraging Policy

As China’s economic development enters the new normal and the development speed slows down,the problems of overcapacity and high leverage of non-financial enterprises are gradually exposed.Therefore,there is an urgent need to improve the supply side environment from the production side and the supply side,so as to promote the supply side structural reform and help deleveraging.In this context,in 2016,the State Council put market-oriented debt to equity swap on the agenda and issued the opinions on actively and steadily reducing enterprise leverage,encouraging highly indebted state-owned enterprises to reduce leverage through market-oriented debt to equity swap.Although China has carried out a round of policy debt to equity swap at the end of the 20th century,it is quite different from this round of market-oriented debt to equity swap.Considering the short duration of this round and the limited practical cases and experience,this paper selects Anhui Construction Engineering Group Holding Co.,Ltd.(hereinafter referred to as"Anhui Construction Engineering")in the high debt construction industry as the case company to study and analyze the implementation motivation and effect of debt to equity swap.Based on the trade off theory,priority financing theory and incomplete contract theory,this paper sorts out the literature related to debt to equity swap.On this basis,it combs the five debt to equity swap events of Anhui Construction Engineering,and analyzes the whole debt to equity swap process from the selection of target enterprises,pricing mechanism and exit mechanism.Then contact with external policies,industry conditions and Anhui Construction Engineering’s own development difficulties to explore the motivation of debt to equity swap.After that,this paper analyzes the market reaction through the event research method,and studies the implementation effect of debt to equity swap with the help of relevant financial indicators.The results show that investors have a positive attitude towards the debt to equity swap of Anhui Construction Engineering.After the implementation of debt to equity swap,the leverage ratio of Anhui Construction Engineering decreased significantly,the profitability of the target subsidiary increased significantly,and the debt to equity swap achieved preliminary results.Finally,suggestions are put forward from the selection of target enterprises,scheme design and financial market,hoping that this paper can provide enlightenment for debt to equity swap in the construction industry in the future.