By Wang Gang & Bo Yan, Research Institute of Finance, DRC

Research Report, No.99, 2018 (Total 5374) 2018-6-21

Abstract: Market-oriented debt-to-equity swap is an important measure to reduce corporate leverage ratio. Since its launch in October 2016, remarkable progress has been made as follows. Its supporting policies have been continuously improved, implementing agencies have been gradually put into operation and business models have kept innovating, and contracted projects and the amounts have increased steadily. However, the lack of necessary policy-based compensations and supporting policies such as a confirmation mechanism for the value impairment of low-efficient assets and the willingness and capacity of implementing agencies of all types as well as the constrained process in pushing ahead with debt-to-equity swap have all led to the relatively low implementation efficiency of current debt-to-equity swap projects. At present, on the one hand, a confirmation mechanism for assessing the value impairment of low-efficient assets based on the agreed transaction prices should be established as soon as possible; on the other hand, a policy-based compensation mechanism should be built up or improved if it is needed: first, low-cost financial support through multiple channels should be provided in line with the implementation outcome; second, the supervision policies for the capital adequacy ratio of debt-to-equity swap should be adjusted and enhanced; third, the supporting policies for capital market on market-based debt-to-equity swap should be defined; fourth, the tax costs of the implementation institutions and corporates of debt-to-equity swap should be reduced. In the long run, a long-term constraint mechanism for deleveraging state-owned enterprises including a dynamic capital replenishment mechanism should be established and improved.

Key words: market-based debt-to-equity swap, deleverage, policy-based compensation mechanism