Definition of debt-to-equity swap
When the enterprise is heavily in debt, insolvent and unable to repay, the creditor-debtor relationship between the original bank and the enterprise can be transformed into equity and property right relationship through the financial management company established by the state. In short, it is the process that the enterprise debtor is transformed into the enterprise shareholder and the creditor's right is transformed into the equity, and it is also a special way of enterprise debt restructuring. What is the significance of debt-to-equity swap? That's how it was explained at the time.
As early as 1998, China implemented a debt-to-equity swap for a period of time, which transformed many state-owned enterprises. However, the object of debt-to-equity swap is limited to enterprises with a certain scale and good development prospects. Due to the limited development of debt-to-equity swap, limited quota and strict inspection regulations, it can only meet the standards before debt-to-equity swap. Conditions and specific process of debt-to-equity swap:
1, the following enterprises are prohibited from being market-oriented debt-to-equity swaps:
(1) Malicious evasion of corporate debts.
(2) Enterprises with complicated creditor-debtor relationship.
(3) Enterprises that may help to expand excess capacity and increase inventory.
(4) Zombie enterprises that have lost their prospects for survival and development.
2. Specific forms of debt-to-equity swap
Implementing institutions implement market-oriented debt-to-equity swaps. Unless otherwise stipulated by the state, banks may not directly transfer their creditor's rights to equity banks. The conversion of creditor's rights into equity should be realized by transferring creditor's rights to the implementing agency, which will convert creditor's rights into equity to the target enterprise.
3. Generally speaking, it includes the following processes:
How to operate and operate debt-to-equity swap
Debt-to-equity swap itself is not complicated. In operation, different measures can be taken according to the conditions and requirements of different enterprises to minimize transaction links and costs and avoid conflicts with the system.
(1) Debt-to-equity swap and issuance of new shares: For an enterprise whose debt-to-equity swap has not been restructured and listed, creditors can participate in the debtor's shareholding system reform as capital contribution, and convert their creditor's rights into equity, which can be realized through issuance of new shares.
(2) Equity transfer: Controlling the equity transfer of debt-to-equity swap enterprises often means changing the development direction and main business of enterprises, which is one of the important ways of enterprise restructuring.
(3) Triangular replacement: the creditor replaces the equity or creditor's rights of the third-party enterprise held by the debtor with creditor's rights, including the replacement after the creditor's rights are converted into equity. When the quality of the debtor's own assets is poor and the creditor can't accept the debt-to-equity swap, if the debtor holds the equity or the creditor's rights of other enterprises, the triangular replacement debt-to-equity swap can achieve the goal.
(4) Pledge of creditor's rights and equity: When the debt of the enterprise cannot be paid off at maturity, the debtor takes the equivalent equity of the enterprise as collateral to recover the possession of creditor's rights and assets at maturity. If the debtor fails to perform the contract, the creditor has the right to dispose of the pledged equity, which is different from the direct transfer of creditor's rights by equity. During the pledge period, the shareholders of the pledged shares have not changed. The debtor is still the nominal owner of this share, but does not enjoy the dividend of this share. But as the interest for paying off the debt to the pledgee at the end of the period. After the expiration of the pledge period, the debtor is still unable to pay off the debt, and when the pledgee disposes of the equity, the creditor's rights can only be transferred to the equity or equity auction.
The advantage of this method is that the debtor will not lose its equity; In the case of nominal control, the debt repayment period is postponed. Creditors have a source of interest income during the extension period, and will not immediately lose their debt repayment rights before the equity distribution, which is more flexible than immediately converting creditor's rights into equity. Its disadvantage lies in its small scope of application, which is only suitable for enterprises to maintain normal business activities, fixed cash inflows and short-term debt settlement crisis.
(5) Repurchase of equity by creditor's rights: When the debt of the enterprise cannot be paid off immediately, the creditor and the debtor sign an equity repurchase agreement, and the creditor buys the equivalent equity of the debtor in the form of creditor's rights (no equity or equity change procedures will be handled during the agreement period). The conversion price is based on the net asset value after excluding the debt, and the repurchase period and repurchase price of the debtor are agreed. There are two ways to determine the repurchase price. Firstly, the time value and opportunity cost of funds are determined, which are usually expressed by annual interest rate; Second, it is stipulated that the net asset value of the shares with the same daily maturity amount should be used as the repurchase price.
Among the above five ways, the first way is suitable for Japanese enterprises or projects and works well. However, due to the debt management of enterprises or projects, the interest burden is heavy, which affects the operating effect. Debt-to-equity swap can improve the balance sheet, reduce the pressure of interest burden, and let enterprises or projects with certain capital operation go public. Its advantages are that it can be listed with a good corporate image and the capital turnover time is not long;
Mode 3 is suitable for enterprises that have no listing potential for debt-to-equity swaps, but whose shareholding period has also been listed. For the outstanding shares or debts of the enterprise, the asset management company may replace the third-party equity or creditor's rights held by the debtor to achieve the purpose of liquidation;
The fourth and fifth modes are more flexible than the first three modes, and they can enjoy the right to repay the creditor's rights first, and get the guarantee of equity when the creditor's rights cannot be fulfilled in time. Compared with the previous methods of increasing holdings, methods 4 and 5 do not increase the total number of shares of the enterprise, and the major shareholders are not in danger of losing control. Therefore, for different companies, it is necessary to comprehensively consider which way to take debt-to-equity swap according to the purpose, financial status, operating status and relevant background of relevant parties.
Target enterprise of debt-to-equity swap
According to the regulatory documents, the executing agency hopes to help enterprises with heavy debt burden, difficult operation but bright prospects.
Judging from the early cases of debt-to-equity swap, most companies that implement debt-to-equity swap have the following characteristics:
1, strong recycling industries such as steel and nonferrous metals;
2. The group company has listed subsidiaries;
3. The asset-liability ratio of group companies is high, and the asset-liability ratio is transmitted to the main body of listed companies;
4. The company's profit shows signs of improvement or potential or has high-quality assets;
5. From the perspective of debt structure, it is not concentrated on certain types of debt, and the proportion of long-term debt is relatively low.
According to the Guiding Opinions on Converting Market-oriented Bank Bonds into Equity, the selection criteria of target enterprises for debt-to-equity swaps and specific cases of debt-to-equity swaps, enterprises with the following characteristics are expected to become target enterprises for debt-to-equity swaps.
1. Industry: cyclical industry and strategic emerging industry;
2. Asset-liability ratio: the debt burden is heavy, but the relationship between creditor's rights and debts is clear;
3. Enterprise qualification: an enterprise with high asset quality and expected future profit growth;
4. Importance of enterprises: large-scale and important enterprises in this region and industry;
5. Operating conditions: In recent two years, the profitability of the enterprise is poor, and the operating cash flow continues to flow out.
When choosing debt-to-equity swap to bid for the Olympic Games, it will be carefully adjusted, demonstrated and played by enterprises, banks, executing agencies and other parties, which is difficult to quantify and needs specific case analysis. Trapped companies with recycling industries, strategic emerging industries, high-quality assets, leading industries and good future profit expectations are more likely to be favored.
Several ways of private equity fund participating in debt-to-equity swap
1, set up an asset management company
Private equity companies can participate in the establishment of asset management companies or directly participate in debt-to-equity swaps through asset management companies.
2. As an investor in the debt-to-equity swap fund,
When large enterprises need huge funds to buy creditor's rights and implement debt-to-equity swaps, the implementing agencies often set up funds in the form of subsidiaries, and private equity funds can participate in the funds as investors and get investment returns.
3. Initiate the establishment of fund managers.
Private fund managers registered with China Securities Fund Association can initiate the establishment of private funds to manage the assets they invest in.
4. Entrusted management of debt-to-equity swap assets
Private equity institutions can give full play to their own advantages and provide supporting services for asset management companies in the form of asset securitization. By initiating and managing the non-performing asset fund, the converted equity of the asset management company will be packaged and managed, and then the management fee and transfer income will be extracted.
5. Transfer the equity of the asset management company after the share conversion.
Asset management companies implement debt-to-equity swaps. After the agreement is reached, the equity launch methods include initial public offering, listing on the New Third Board, merger and acquisition or direct transfer to other purchasers. Private equity funds are good at investment management and exit. They acquired the equity of the asset management company and withdrew from profit after integration.
6. Providing consulting services for the debt-to-equity swap implementation plan.
In the process of debt-to-equity swap, private equity institutions can serve as an independent third-party platform to coordinate the relationship between these multiple creditors.
Debt-to-equity swap case
1, relevant background
Changhang Phoenix: Its main business is dry cargo transportation, and it is the largest enterprise specializing in inland dry bulk cargo transportation in China. However, in 20 1 1-20 12 years, the shipbuilding industry suffered losses for two consecutive years, and was warned of the risk of delisting. In 20 13 years, it became insolvent.
Subsequently, its creditors Nantong Tianyi Marine Fuel Supply Co., Ltd. and Zhuhai Yamen Energy Saving Products Co., Ltd. applied to the Wuhan Intermediate People's Court of Hubei Province for reorganization of Changhang Phoenix on the grounds that they could not pay off their debts due and their assets were insufficient to pay off all their debts.
2. Rectification measures
On February 25th, 20 14, Changhang Phoenix disclosed the reorganization plan, which was based on the existing total share capital of Changhang Phoenix and increased by 5 shares for every 10 share of capital reserve, with a total share capital of 33,7361152 shares. The transferred shares will not be distributed to the original shareholders, but under the supervision of the administrator, part of them will be used to pay the debts and expenses of Changhang Phoenix.
3. After the resumption of listing.
20 15 12 18, changhang phoenix was listed on the first day of resumption of trading. Changhang Phoenix opened at 18 yuan, and its share price soared to 2 1.6 yuan on that day, and finally closed at 2 1.2 yuan, with an increase of 1 154%. On that day, the turnover was 330 million shares, with a turnover of 6.564 billion yuan, far exceeding the total ordinary creditor's rights of 4.574 billion yuan of 132 creditors.
Finally, after a series of layoffs, asset liquidation and operation, Changhang Phoenix avoided bankruptcy liquidation, gave the company the opportunity to continue operating, and greatly improved its credit quality. But not all enterprises can come back to life. Debt-to-equity swap involves the conversion of equity and bonds, which has great uncertainty. After the emergence of such enterprises, it is necessary to understand the relevant risks and implementation conditions.
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