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"A review of debt to equity" problem

Author: WeiZhi From: www.yourpaper.net Posted: 2007-11-19 12:54:16 Read:
A question of debt-to-equity swap, and reform the target

The problem of debt-to-equity swap in the late 80's there are people from the angle of bank assets mentioned, 1993, 1994 has been scholars Wu Xiaoling, Zhou Xiaochuan from the perspective of solving the non-performing assets of banks are discussed, the government debt into practice, is expected to draw the United States banking non-performing assets handling experience, through the establishment of the Asset Management Co, by means of the debt-to-equity swap, solve a lot of bad assets problems in China's financial industry, financial risks, and promote the reform of state-owned enterprises, state-owned enterprises to speed up the three relief process.The specific objectives can be summarized as the following four aspects:

(1) to dissolve the financial risks, improve the recovery of non-performing assets rate.

A variety of treatment of non-performing assets, such as transfer, sale, replacement, packing, securitization, debt-for-equity swaps; for a large number of small and medium-sized claims, can be processed through auction, sale, transfer mode; but for the bulk of creditor's rights, by way of debt, can improve the recovery of bad assets rate.

(2) to promote state-owned enterprise solution process.

Debt-to-equity swap can alleviate the financial burden of enterprises, so that in part because of high debt ratio, the interest burden of state-owned enterprises through debt-to-equity swap turn around.

(3) to promote the reform of state-owned enterprises, strengthen corporate governance structure.

Part of the state-owned enterprise products market, but because the enterprise governance structure problems, poor management and long-term losses, through a debt-for-equity swap change enterprise's capital, can improve the corporate governance structure, strengthen enterprise management, to achieve profit goal.

(4) to promote the strategic adjustment of state-owned economy layout.

State-owned economy should gradually withdraw from competitive industries, the debt-to-equity swap to realize the layout of state-owned economy strategical adjustment of target.

Two, the actual operation of
the debt-to-equity swap

The problem of debt-to-equity swap first pilot in established China Xinda Asset Management Co.The specific operation procedure is recommended by the economic and Trade Commission, Asset Management Co in the recommended list of choices, and finally by the debt-to-equity swap leadership team (composed of economic and Trade Commission, the Ministry of finance, people's Bank and other units) for approval; Asset Management Co can choose their own enterprise, but reported to economic and Trade Commission approved.At present, the economic and Trade Commission has recommended the debt-to-equity swap enterprises 108, another 492 families are doing work; Xinda Asset Management Co has signed debt-to-equity swap enterprises six, relates to the field of metallurgy, chemical, building materials and so on; the debt-to-equity swap enterprise mode for enterprises differ, but the focus is the enterprise products structure, capital structure and governance structure, as for the funds flow model to much main basis accounting firm determination.Because the Asset Management Co's survival period of 20 years, considering the holding period of Asset Management Co and exit channels in the debt-for-equity swap, Xinda company holding period is generally limited to four years, the next exit channel has more choice, such as enterprise with its own share repurchase, repurchase by the enterprise's parent company, the local government to make arrangements or other acquisitions, recommend listing, gradually reduce its stake, at home and abroad to sell its stake.

Three, there is the problem of debt-to-equity swap

(1) the actual operation is faced with many difficulties.

First is the economic and Trade Commission proposed in line with the conditions of debt-to-equity swap enterprises rarely; second is the enterprise is in debt understanding there is a misunderstanding, the debt-for-equity swaps as a preferential policy for the reform of state-owned enterprises, and even triggered a series of problems, such as part of the enterprise no longer can interest interest, produce very adverse effects on the banks; again is the enterprise multiple accounts, debts by much home bank loans, and banks of debt-to-equity standard exists bigger difference, debt-to-equity swap coordination difficult; the last is the mutual guarantee among large enterprises, the actual operation of complicated debt-for-equity swap.



(2) the sources of funds and subsidies for the losses of the debt-to-equity swap.

Debt to equity funds have five channels: the central bank refinancing, directional bonds, loans, commercial banks to loan, to a one-time central banks to set up special funds; but no matter what kind of financing way, take bad assets resulted in the loss of only two ways: one is funded through financial subsidies, borne by taxpayers, two borne by the people through inflation or seigniorage.Therefore, the subsidy should be limited to banks with national policy loans form bad assets range, by the banks own mismanagement of non-performing assets, even if the treatment through debt-to-equity swap, will lead to losses can only be borne by the bank itself.

(3) the recovery of bad assets rate.

In the process through a debt-for-equity swap deal with the non-performing assets, how to improve the recovery rate of bad assets problem, attracted a lot of attention.Recovery of the United States of America financial bad assets rate is around 40%, but the financial bad assets in our country and the United States of America's quality is comparable?The recovery of 30% such as whether the relevant departments said that to complete the task, the recovery of 40% outstanding, recovery of 50% is to create a miracle?Some experts believe that, through a debt-for-equity swap deal with non-performing assets of financial, should prevent the loss of state assets, improve the recovery of non-performing assets rate, should according to the local protectionism and other losses caused by the state-owned assets to formulate the corresponding provisions, such as whether can provide enterprises repurchase equity price of not less than the price of debt-to-equity swap.

(4) in debt to equity's role in the process of intermediaries.

China's banks have a large number of non-performing assets problem, dealing with large scale of non-performing assets, several Asset Management Co power can do?Part of the business is big securities firms and other intermediary agencies can participate in debt?Some experts think the, nature of debt-to-equity swap is a kind of investment banking business, the United States financial non-performing assets is with the help of investment banking, but the way they handle is packing instead of debt-to-equity swap; China's large securities firms and other intermediary institutions to invest in assets reorganization and other bank business has accumulated abundant experience, has a group of high-quality investment banking personnel, through managed as ways of getting intermediaries involved in the debt-to-equity swap, may have a certain role in promoting the problem of stock.

(5) to prevent moral hazard problems appeared in the process of debt-to-equity swap.

Debt-to-equity swap is put forward as to realize state-owned company three years from reform measures, was widely regarded as a preferential policy, part of the enterprise did not loss for can enter the debt-to-equity swap ranks, and become the loss-making enterprises through accounts processing, the state-owned enterprises are "three accounts" phenomenon: the an account of the competent authorities, the securities regulatory departments, debt-to-equity swap departments (in fact the tax, business also have an account); many of the original active servicing enterprise regret, to interest payments are in arrears is not paid, exacerbated by the impending bank debt evasion of enterprises and speculation, so that the credit relationship the already poor further damage, to the bank management is also very unfavorable.Need to emphasize on not debt of state-owned enterprises is "free lunch".

Four, correctly handle three years out of debt of state-owned enterprises and the relationship of

In theory, debt to equity, equity financing is higher than the debt financing cost; enterprise management should fear the ownership was acquired, but some state-owned entrepreneurs are like the debt-to-equity swap, indicating that the mechanism of state-owned enterprises is a problem, also shows that in 1984 to implement the "batch change borrow" didn't go through.The only solution to the debt problem of debt-to-equity swap enterprises from the book, is a kind of liability for loss of the transfer or redistribution, and not other measures completely replace liven state-owned enterprises, also hard to solve the loss problem of all state-owned enterprises.Considering the problems in the debt swap, there must be a limit, for example 600, dedicated to solve the loss problem in the large state-owned enterprises; at the same time, can not engage in too quickly, otherwise there will be no good results; the best way is to use debt to equity of opportunity, the state-owned enterprises by the investment subject diversification, completely change the governance structure of state-owned enterprises, according to the strategic adjustment of state-owned economy layout requirements, to gradually withdraw from the part of industry.
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