What is debt-to-equity swap, and what is its significance and function?
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 a holding (or shareholding) and controlled relationship between financial asset management companies and enterprises. After the creditor's rights are converted into equity, the original principal and interest will be paid out in shares.
Meaning:
(1) Revitalize the bank's non-performing assets, separate the bank's non-performing assets and turn them into corporate equity. This can greatly improve the bank's credit status, thus revitalizing the bank's funds. Reorganize enterprises through banks, change single state-owned capital and increase the activity of state-owned capital.
(2) Strengthen the management and supervision of enterprises. In China, the capital market is underdeveloped, and the funds of state-owned enterprises rely heavily on bank loans, but the creditor status of banks makes it impossible for banks to restrain the behavior of enterprises.
Article 4 of the Measures for the Administration of Financial Asset Investment Companies stipulates that a bank's debt-to-equity swap through a financial asset investment company shall be realized by transferring the creditor's rights to the financial asset investment company, and the financial asset investment company will convert the creditor's rights into the equity of the target enterprise. Banks may not directly convert creditor's rights into equity, unless otherwise stipulated by the state.
When a debt-to-equity swap institution raises funds by itself or establishes a private equity investment fund with a debt-to-equity swap enterprise, the debt-to-equity swap enterprise issues corresponding convertible securities (such as common stock, preferred stock and convertible bonds). Replace the existing debts of debt-to-equity swap enterprises, so as to reduce the leverage ratio of debt-to-equity swap enterprises.
The liberalization of the preferred stock policy is an important direction. Not only listed companies and unlisted public companies, but also some unlisted non-public companies have liberalized the issuance of preferred shares, especially debt-to-equity swap enterprises, which are more likely to be approved.
Securities of debt-to-equity swap enterprises held by debt-to-equity swap implementing institutions or private equity investment funds established by them are either repurchased, listed for sale or listed for transfer in public trading places by debt-to-equity swap enterprises.