Research On The Operation Mode And Effect Of Market-oriented Debt-equity Swap Of Shandong Road&Bridge

The 20th National Congress of the Communist Party of China proposed that it is necessary to achieve both high-quality development and reasonable growth in economic aggregate.However,in recent years,a number of enterprises in China have suffered from poor management,heavy debts and even bankruptcy because of the coronavirus pandemic,limited resources and environmental protection.In particular,the economic cycle of construction industry is so long that investment cannot be withdrawn in time.All of these factors cause the high risk of debt and leverage.In order to stop the losses in time and alleviate the current difficulties,enterprises should not only seek help from the government,but also explore the way of innovative development based on the reality.No destruction,no construction.The company should adjust the development strategy and capital structure at the proper opportunity.It’s necessary to take a sustainable development path suitable for their own enterprises.Shandong Road&Bridge is a construction enterprise that invests,builds,operates and maintains transportation infrastructure.But it also faces the problems including high debt and high leverage.In order to promote the healthy development of the enterprise,Shandong Road&Bridge implemented market-oriented debt-equity swap from 2018 to 2020,becoming the first state-owned enterprise of construction industry in Shandong Province to implement such swaps.This paper takes the market-oriented debt-equity swap of Shandong Road&Bridge as the research object,systematically analyzing the operation mode and effects of the swap.Firstly,after understanding the participating entities and the reasons for the swaps,the operating mode is analyzed from four aspects: the operation process,capital increase situation,exit mechanism,and valuation pricing.Secondly,an analysis of the financial effects of the swaps is conducted,mainly using factor analysis and EVA to comprehensively evaluate the financial effects,and demonstrating the superiority of market-oriented debt-equity swap compared to ordinary equity financing and ordinary bond financing.Then,an analysis of the market value,equity structure,and capital structure changes brought about by the swaps for the enterprise is conducted.The research results show that Shandong Road&Bridge achieved its goal of improving its debt paying ability and profitability capabilities and optimizing its capital structure through a "two-step" debt-equity swap mode,which is conducive to the long-term development of the enterprise.Finally,this paper summarizes the experience of the Shandong Road&Bridge debt-equity swap project and provides relevant recommendations,in order to provide reference for other enterprises interested in debt-equity swap.