The definition of the two
Debt-to-equity swap refers to the establishment of financial asset management companies by the state, the acquisition of non-performing assets of banks, and the transformation of the original creditor-debtor relationship between banks and enterprises into the equity and property rights relationship between financial asset management companies and enterprises. After the creditor's rights are converted into equity, the original fixed principal and interest amount will be converted into profit dividends of participating companies according to the shareholding ratio.
In fact, the state financial asset management company has become the controlling shareholder of the enterprise, and can exercise shareholder rights according to law and participate in the company's major affairs decision-making. However, if the company does not participate in the normal production and operation activities of the enterprise, it will recover its investment through asset reorganization, listing, transfer or enterprise repurchase after the economic situation of the enterprise improves.
Convertible bond: refers to the convertible bond holder who can convert the bond into the company's common stock in a certain proportion according to the conversion price set by the company during the conversion period. If bondholders do not want to convert their shares, they can continue to hold the bonds until maturity, charge the face value of the bonds plus interest, or sell the convertible bonds directly at the market price. The price of convertible bonds usually moves in the same direction as the company's positive share price. If the premium of conversion is negative, it can be profitable to sell after conversion. The holder may exercise the conversion right during the conversion period, and the issuing company may not refuse.
Similarities between the two
Debt-to-equity swap refers to a way of converting creditor's rights into equity, mostly ordinary bonds. Generally, the trapped companies with high-quality assets, leading industries and great expectation of turning losses in the future are more likely to implement debt-to-equity swaps, but many companies that do not have the conditions cannot implement debt-to-equity swaps.
Convertible bond is a special bond issued by a listed company with bond issuance qualification, and all bondholders have the right to freely convert their shares during the conversion period. In essence, convertible bonds are also a kind of debt-to-equity swap.
The difference between the two
1. Participants: Ordinary debt-to-equity swaps are generally three or more parties, and convertible bonds are generally both companies and bondholders.
2. Price: Ordinary debt-to-equity swaps are generally converted into shares at a fixed ratio, while the conversion price of convertible bonds is variable, so the number of shares converted is also variable.
3. Interest rate: The interest rate of convertible bonds is generally lower than that of ordinary bonds.
4. Risk: Ordinary debt-to-equity swaps may have the risk of bankruptcy, and convertible bond companies are generally well-run companies.
5. Conversion method: convertible bonds are automatically converted into equity, and ordinary debt-to-equity swaps need to be approved first.
6. Holders: Most holders of ordinary debt-to-equity swaps are passively held when disposing of debts, while most convertible bonds are actively held by investors.
The above are the similarities and differences between ordinary debt-to-equity swaps and convertible bonds, hoping to help you.