In the field of stock investment, debt-to-equity swap is a kind of debt restructuring, and it is also a common way to control risks in venture capital. Under normal circumstances, the ideal situation of implementing debt-to-equity swap is to achieve a win-win situation among banks, indebted enterprises and asset management companies. So, what are the advantages and disadvantages of debt-to-equity swap?

What are the advantages and disadvantages of debt-to-equity swap?

Advantages of 1

For banks, it helps to reduce the non-performing loan ratio and improve the provision coverage ratio. When commercial banks dispose of non-performing assets, the relationship between creditor's rights and debts to debtor enterprises will become equity relationship, which can effectively curb the rise of non-performing assets ratio. For enterprises, the advantage of debt-to-equity swap is that it can reduce liabilities and subsequent interest expenses.

2 shortcomings

The increase of bank capital occupation needs the strong promotion of the central bank if it is to be implemented without its own motivation. Moreover, the risk exposure will increase after the implementation of debt-to-equity swap.

Summary: Debt-to-equity swap mainly transforms the creditor's rights and debts between banks and enterprises into the equity relationship between asset management companies and enterprises. Debt-to-equity swap refers to the process that commercial banks, asset management companies and other financial institutions convert their creditor's rights to enterprises into equity, thus converting creditors into new shareholders of enterprises.