As an optional way to deal with corporate bad debts, debt-for-equity swaps can improve a company's long-term profitability and structurally transform the industry, so it has received widespread attention from the market.

Debt-for-equity swaps were once a hot spot in the stock market. Today I would like to share with you what debt-for-equity swaps are, how debt-for-equity swaps operate, how private equity funds participate, and classic cases of debt-for-equity swaps.

Debt-for-equity swap definition: When an enterprise is heavily in debt, insolvent, and unable to repay, the creditor-debt relationship between the original bank and the enterprise can be converted into an equity-debt relationship through a financial management company established by the state.

In short, this is the process of converting corporate debtors into corporate shareholders and converting debt into equity. It is also a special way of corporate debt restructuring.

The meaning of debt-for-equity swap was explained at that time.

As early as 1998, debt-for-equity swaps were implemented in China for a period of time, allowing many state-owned enterprises to be reborn.

However, the target of debt-for-equity swaps is limited to companies with a certain scale and good development prospects. Due to limited debt development, limited quotas, strict inspections and relevant regulations, they can only meet the standards before debt-for-equity swaps.

Conditions and specific procedures for debt-for-equity swaps: 1. It is prohibited to use the following companies as market-oriented debt-for-equity swap targets: (1) Malicious evasion of corporate debts.

(2) Enterprises with complex and unclear claims and debts.

(3) Companies that may help expand excess production capacity and increase inventory.

(4) Zombie companies that have no hope of turning around losses and have lost prospects for survival and development.

2. Specific forms of debt-for-equity swaps. The implementing agency implements market-oriented debt-for-equity swaps. Unless otherwise stipulated by the state, banks are not allowed to directly transfer claims to equity. Banks convert claims into equity by transferring claims to the implementing agency, and the implementing agency transfers the claims to equity.

Converted into target enterprise equity.

3. Generally speaking, it includes the following process: How debt-for-equity swap operates and the operating model. Debt-for-equity swap itself is not complicated. In operation, different measures can be taken according to the conditions and requirements of different enterprises to reduce transaction links and costs as much as possible.

, to avoid conflicts with the system.

(1) Debt-for-equity merger and new stock issuance: For enterprises that have not been restructured and are listed on debt-for-equity swaps, creditors can participate in the debtor's shareholding reform as capital contributions, convert debt into equity and realize it through the issuance of new shares.

(2) Equity transfer: Controlling the transfer of equity in a debt-for-equity swap enterprise often means changing the development direction and main business of the enterprise, which is one of the important ways of corporate restructuring.

(3) Triangular replacement: The creditor uses claims to replace the equity or claims of a third-party enterprise held by the debtor, including the replacement after the claims are transferred to equity. When the quality of the debtor's own assets is poor and the creditor cannot accept the transfer of its claims to equity, if

If the debtor holds equity or claims in other enterprises, triangular debt-to-equity swap can achieve its purpose.

(4) Debt-pledged equity: When the enterprise's debt cannot be repaid when it expires, the debtor uses the enterprise's equivalent equity as collateral and takes back possession of the debt assets when it expires.

If the debtor fails to perform the contract, the creditor has the right to dispose of the pledged equity. This method is different from the direct transfer of equity claims.

During the pledge period, the shareholders of the pledged shares have not changed.

The debtor is still the nominal owner of this part of the shares, but does not enjoy the dividends of this part of the shares.

Instead, it is used as interest to pay off the debt to the pledgee at the end of the period.

If the debtor is still unable to pay off the debt after the expiration of the pledge period, the creditor's rights can only be transferred to equity or equity auction when the pledgee disposes of the shares.

The advantage of this method is that the debtor can postpone the debt repayment deadline without losing equity or nominal control.

Creditors have a source of interest income during the extended period and will not immediately lose their debt repayment rights before the equity is distributed, which is more flexible than immediately transferring claims to equity.

Its shortcoming is that its scope of application is small, and it is only applicable to enterprises maintaining normal operating activities, fixed cash inflows, and short-term debt repayment crises.

(5) Debt repurchase of equity: When the corporate debt cannot be paid off immediately when it expires, the creditor and the debtor sign an equity repurchase agreement, and the creditor purchases the debtor's equity of equal value in the form of the creditor's rights held (no changes to share capital or equity will be processed during the agreement period)

formalities).

The conversion price is based on the net asset value after excluding this part of the debt, and the repurchase period and the debtor's repurchase price are agreed at the same time.

There are two ways to determine the repurchase price.

The first is to determine the time value and opportunity cost of funds, which should usually be expressed as an annual interest rate; second, it is stipulated that the equity net asset value that is the same as the maturity amount on the day should be used as the repurchase price.

Among the above five methods, the first method is suitable for enterprises or projects operating well in Japan, but due to debt operations of the enterprise or project, the interest burden is heavy, which affects the operating results.

Through debt-for-equity swaps, after improving the balance sheet and reducing the pressure on interest burdens, companies or projects with certain capital operations can be listed.

The advantage is that it can be listed with a better corporate image and the capital turnover time is not long; the third mode is suitable for debt-for-equity swap companies that have no listing potential, but have also been listed during the shareholding period.