How To Deal With Bank Debt To Equity Swap?

Under the background of the current economic downturn, it is urgent to solve the crisis of corporate liquidity and prevent debt risk fermentation. Debt to equity swap is to convert the huge loans owed by the enterprises into the equity of banks. This will not only help the debt enterprises overcome difficulties, but also reduce the bad debts of the banks. The debt to equity swap can effectively avoid a series of problems, such as bankruptcy, bank tightening, unemployment and so on.

But it seems that the problem is not so simple. If banks borrow money to become shareholders, bad assets are still in the hands of banks. Is it possible to evolve into "bad equity" in the future? How can we define enterprises as "temporary difficulties" or "zombie enterprises"?

Reporter: how to evaluate the overall impact of debt to equity swap? Is "debt to equity swap" a good recipe for China's economic self-help or a dangerous bomb? Some people say that the overall impact on the economy is honey in the short run and poison in the long run.

Lv Suiqi: for the current debt to equity swap, we can not simply say yes or no, because the concept of "debt to equity swap", which is currently heated by the media, is not a debt to equity swap in the general sense.

In a general sense, an enterprise needs money, which can choose either debt financing or equity financing. For investors, the rights of these two kinds of financing are different, creditor's rights financing has priority claim, and equity financing is not.

As a creditor, if he looks ahead to the future of an enterprise, he will choose to turn creditor's right into equity.

If the prospect of the enterprise is not optimistic, it will retain the creditor's right, that is, retain the right of priority.

That is to say, in general sense, debt to equity swap happens only when creditors are optimistic about the prospects of enterprises.

The bank debt to equity swap, which is currently under discussion, is not quite the same as the general debt to equity swap. Now the situation is that the loans that banks lend to enterprises can not be recovered, and a bad loan has been formed. The company takes out a piece of paper and says that the debt is converted into equity. In fact, it is still a "white bill", and the bank is a passive debt to equity swap.

Convertible bonds can be converted into debt and equity swap.

The internal problem is the conversion of creditor's rights and equity rights, and now the "debt to equity swap" of banks is the pformation between direct financing and indirect financing.

Tan Yifei: at present, the quality of the bank's assets is fairly good, but after the debt to equity swap, banks may have to replenish their capital.

Debt to equity swap is a short-term therapy based on time for space, temporary temporary solution, so that "virus" does not spread, waiting for other parts of "muscle energy" to restore normal, and ultimately seek permanent cure.

Now, the huge debts of some iron and steel enterprises involve many banks.

For banks, whether debt or equity swap is a big trouble, "debt is there, no increase or decrease", but after debt to equity swap, these problems can be postponed.

Song Qinghui: in the short term, for the stock market trend, trillions of scale debt to equity swap is good news. Some state-owned enterprises' performance is expected to benefit directly from this. Supporting their stock price upward is also a powerful support for the market.

But in the long run, debt to equity swap will hurt everyone's "wallet".

For ordinary people, the impact of debt to equity swap may be more negative.

Reporter: is the risk of bad loans in the banking industry controllable? After the debt to equity swap, the bank's bad loans will be reduced, but will "creditor's rights" become "equity", will it bring new troubles or risks to the banks? Will the commercial banks, which are mainly concerned about credit, have enough professional stock management capability?

Lv Suiqi: if the risk of non-performing loans is controllable, why do we need to carry out debt to equity swap? At present, the international credit rating agencies downgrade China's credit rating, an important criterion of credit rating is the default risk of debt, and the risk of debt default will lead to a credit rating downgrade.

Moreover, the rising risk of corporate default risk also shows that the fundamentals of business are not optimistic.

If there is no debt to equity swap, the rate of bad assets of banks may rise substantially, and the reports will be ugly. This will further affect the stock price of bank shares and even trigger systemic risks.

Therefore, the implementation of debt to equity swap may conceal or delay some problems.

Song Qinghui: for banks, the introduction of debt to equity swap will provide banks with more options to deal with bad debts, reduce the participation of AMC companies in the trading links, reduce the bad books and bad loan rates, increase the coverage rate of the provision, and maximize the ease of the bank's nuclear sales pressure.

Tan Yifei: commercial banks are mainly engaged in credit business. They do not participate in the experience of industrial management. After directly participating in debt to equity swap, banks become shareholders of enterprises, but they are not necessarily helpful to the development of enterprises. Banks can not directly improve the operating efficiency of enterprises.

Therefore, a better way is to deal with these bad assets through marketization, and auction these bad assets by banks.

If banks do not have the option to undertake equity, they will only become preferred stock.

Reporter: Based on the experience of debt to equity swap in the 90s of last century, can debt convertible stocks really help the troubled enterprises? It is reported that the last round of state-owned enterprises that have converted debt to equity is now possible to become a new round.

Lv Suiqi: in the 90s of last century, a round of debt to equity swap was different from that of debt to equity swap.

In the last round of debt to equity swap, the bad assets of banks were stripped out through the establishment of the four largest financial Asset Management Co, and the quality of bank surplus assets was greatly improved.

At present, this round of debt to equity swap to be implemented is that banks will reclaim their external bad debts, so the average quality of bank assets may decline.

This means that two rounds of debt to equity swap can not be compared.

If the operating conditions of some enterprises have not been improved, the debt to equity swap is equivalent to allowing these enterprises to get money from the stock market, and they will be even less motivated to repay the money.

The reason why the last round of debt to equity swap enterprises is likely to participate in debt to equity swap again is because some companies have tasted the "sweetness" that they did not pay back last time.

The worst case is that debt to equity swap is likely to make some companies regard banks as ATMs, and borrow money, regardless of repayment.

Tan Yifei: no improvement in enterprise efficiency. All means are nonsense. The last round of some enterprises took part in the debt to equity swap, and the business situation did not improve. This round is likely to participate in debt to equity swap again.

If some enterprises are already in a state of illness, they will not be able to participate in debt to equity swap even if they are under the death notice. If they are forced to carry out debt to equity swap to postpone their death, they will spend a lot of "medical expenses".

Song Qinghui: debt to equity swap is hard to replicate the successful experience of the United States. The United States rescues the market systemic risk. The debt to equity swap in domestic history is completed according to the government's instructions. The main target is concentrated in the field of serious excess capacity, which is far from marketization, so the hidden danger may be very large.