Debt-for-equity swaps are negative. For the company, the debt-for-equity swap operation is to solve the debt problem through private placement. Banks are already facing the risk of bad debts, and private placement eliminates the risk of bad debts. For those who hold company stocks, For shareholders, future dividends will be smaller. After the debt-for-equity swap operation, the present value of the integrated equity investment shall not be lower than the current debt price.
Debt-for-equity swap has always been an operation that cannot be ignored in the stock market. Debt-for-equity swap refers to the conversion of debt into equity, which means converting the credit-debt relationship into an equity relationship. In other words, debt-for-equity swap refers to the conversion of debt into capital, and the creditor should recognize the fair value of the shares as an investment in the debtor.
In general, debt-for-equity swaps are negative. Whether the debt-for-equity swap operation is good or bad for individual investors mainly depends on the dialectical perspective of bad and good.
Concept
Debt for Equity Swap refers to the use of financial asset management companies as the main investment entities to convert the original non-performing credit assets of commercial banks - that is, Convert the debt of the enterprise into the equity of the financial asset management company in the enterprise. It does not convert corporate debts into state capital, nor does it write off corporate debts in one fell swoop, but changes the original creditor-debt relationship into a relationship between holding and being held, and controlling and being controlled, between financial asset management companies and enterprises. Changed from the original principal and interest payments to dividends based on shares.
From the perspective of international relations, debt-to-equity swap means that when a debtor country faces economic difficulties or a decline in credit rating, it redeems its foreign debt in its own currency at a certain discount based on market conditions. The creditor then invests in the debtor country's currency, converting the original debt into equity. This situation is known as debt securitization by the debtor country.
On May 22, 2019, Premier Li Keqiang chaired an executive meeting of the State Council to determine measures to further promote market-oriented and legalized debt-for-equity swaps, support enterprises in relieving risks, and enhance development potential; arrangements were made to further promote Socially run hospitals will continue to develop in a healthy and standardized manner, increase the supply of medical services, and promote the improvement of people's livelihood.
The meeting pointed out that in accordance with the deployment of the Party Central Committee and the State Council, the implementation of market-oriented and legalized debt-for-equity swaps is an important measure to support companies with market prospects to alleviate debt pressure, promote stable growth, and prevent risks. Debt-for-equity swaps have been implemented for more than 900 billion yuan, which has promoted the reduction of corporate leverage ratios and improved operating efficiency. The next step is to face the problems head-on, solve the problems, and focus on increasing the debt-for-equity swap, expanding its scope, and improving its quality. First, establish a reasonable pricing mechanism for debt-for-equity swaps, improve the due diligence exemption measures for state-owned enterprises, implementation agencies, etc., innovate debt-for-equity swap methods, expand the pilot program of debt-for-equity swaps, encourage high-leverage high-quality enterprises and business sectors to prioritize the implementation of debt-for-equity swaps, and promote More projects were signed and implemented. The second is to improve policies and properly solve the problems of high risk weights and large occupied capital for debt-for-equity swaps held by financial asset investment companies and other institutions, take multiple measures to support their replenishment of capital, and allow equity swap asset transactions to be carried out through qualified trading venues. , give full play to the important role of financial asset investment companies in debt-for-equity swaps. The third is to actively attract social forces to participate in market-based debt-for-equity swaps, optimize the equity structure, and equally protect social capital rights and interests in accordance with the law. Support financial asset investment companies in initiating the establishment of asset management products and allow investment in insurance funds, pensions, etc. Explore publicly raised asset management products to participate in debt-for-equity swaps in compliance with laws and regulations. Encourage foreign capital to invest in implementing agencies.