"Born in sorrow, die in comfort." This warning from "Mencius" is particularly appropriate when used on the stage of mergers and acquisitions in the capital market today. At a time when listed companies are on the verge of bankruptcy, a capital operation called "debt-to-equity" has become the last straw for countless companies to turn the tide. However, if this straw is grasped correctly, it is a golden springboard to rebirth; if it is grasped incorrectly, it may become the last straw that breaks the camel's back.
In Goheal's view, "debt-to-equity" is not a simple financial term, but a double-edged sword in the game of corporate destiny. It can "deleverage", reduce debt, and stabilize operations, but it may also cause changes in controlling rights, asset shrinkage, and even trigger "stock price stampede" due to improper design or out-of-control execution.
American Goheal M&A Group
What kind of companies are suitable for debt-to-equity swaps? How can debt-to-equity swaps be operated to "enter elegantly and exit decently"? What "hidden corners" are frequently overlooked in this process? This capital transformation from "debt to equity" is far from as simple as we think.
First, we need to see whether this is a "really needed" debt-to-equity swap.
Just like emergency surgery, debt-to-equity swap is not suitable for all companies, and it is not necessary to "swap" when the company is losing money. Companies that are truly suitable for this "prescription" often have the following characteristics: first, the debt level is high but the asset quality is acceptable; second, the main business has not been fundamentally damaged; third, the creditors are willing to transfer, the shareholders of the company are willing to let go, and the regulatory authorities support the release.
For example, a private construction listed company X, restricted by the regulation of the real estate industry, faced a crisis of large accounts receivable that could not be recovered and cash flow was broken, and the debt was overwhelming. However, after an asset inventory, it was found that it had a large number of high-quality engineering projects that had been completed but not yet settled, as well as state-owned customers with strong potential repayment capabilities. At the suggestion of Goheal, the company negotiated with several core banks to promote debt-to-equity swaps in the form of "non-public private placement", which not only significantly reduced liabilities in the financial report, but also used "future value" to exchange for breathing space in the present.
We always emphasize that the core of debt-to-equity swaps is not to "whiten" bad debts, but to "recover" good assets.
Secondly, "who will do the swap, how much, and how to do it" determine the risk boundary of this operation.
If debt-to-equity swaps are an "internal organ reconstruction" of an enterprise, then the creditors are the surgeons, the conversion price is the anesthetic, and the exchange ratio is the stitching technique. If there is a slight imbalance among these three, the stock price will fluctuate violently at best, and the equity structure will collapse at worst.
We have seen a listed manufacturing company Y, in the process of debt-to-equity conversion, because the pricing mechanism was not coordinated with the expectations of the secondary market, resulting in the new stock issuance price being far lower than the market price, triggering panic selling by the original shareholders, and the company's stock price was halved within two weeks, which turned the debt-to-equity conversion, which was originally intended to "deleverage", into "self-belief". Before implementing debt-to-equity conversion, enterprises need to simulate the "market value management script" in advance. Through "fixed increase pricing + restricted sale period management + phased gambling arrangement", the shares after debt-to-equity conversion have long-term holding value, while preventing the sharp fluctuations in stock prices caused by the release of liquidity.
In addition, the "priority conversion + follow-up investment mechanism" can be introduced to guide the original shareholders to participate in the simultaneous capital injection, and effectively build the market confidence of "conversion without dispersion".
Next, debt-to-equity conversion is only a "surface action", and integrating resources is "Core momentum".
If debt-to-equity swaps are the spark that ignites the restart engine, then the company's subsequent resource integration capabilities are the key to whether the engine can run for a long time. Many companies "lay flat" after completing debt-to-equity swaps, missing out on this wave of new opportunities brought by light equipment.
Goheal found in multiple cases that companies that can quickly carry out "light asset operations" or "strategic divestitures" after debt-to-equity swaps are more likely to achieve the dual effects of "blood recovery" + "transformation". For example, an electronic listed company Z, after clearing 70% of bank liabilities through debt-to-equity swaps, immediately sold the loss-making manufacturing links and introduced AI chip partners as strategic investors. In just one year, it grew from "ST edge" to a representative of "new quality productivity", and its stock price tripled.
We believe that capital It is not a goal, but a tool; debt-to-equity swap is not an end, but a starting point.
However, the technical details of debt-to-equity swap are far more than just "whether to swap or not, and how to swap".
Each of the accounting treatments, tax arrangements, and voting rights structure adjustments involved may trigger a chain reaction of subsequent consolidation, delisting, and changes in controlling rights. Especially when creditors become major shareholders through equity conversion, the balance of the original governance structure is broken, and it is often necessary to simultaneously establish a "voting rights trust" and "restrictive voting mechanism" to prevent fierce competition.
Goheal suggested that when designing a debt-to-equity swap plan, companies should not only hire financial advisors, but also "organizational psychological consultants" - because the change in identity from creditors to shareholders brings not only book benefits, but also re-anchoring of cognition and roles. This transformation, It is the most complex and most underestimated variable in this rebirth game.
In the final analysis, debt-to-equity swap is not a "bad debt compressor" but an "opportunity redistributor". Its significance has never been just the improvement of financial indicators, but the overall reshaping of capital structure, corporate cognition and strategic layout.
Today, with the slowdown of IPO pace and the tightening of financing windows, more and more listed companies are beginning to face up to the hidden risks and opportunities in their asset structure. Debt-to-equity swap provides a path to "repair credit, activate resources, and reshape value". However, it is by no means a master key, nor is it the last option of "only when there is no other way", but a "rebirth engine against the wind" that requires precise design and meticulous execution.
Do you think debt-to-equity swap is the most noteworthy capital operation tool at present? In your industry, which companies have successfully staged a "second life" through debt-to-equity swap? Are there any negative examples that impressed you?
Welcome to leave a message in the comment area to share your views. The capital market has never lacked stories, but only people who understand the stories. And Goheal is always by your side, helping you understand the secret language of capital and see the context of rebirth.
Goheal Group
[About Goheal] Goheal is a leading investment holding company focusing on global mergers and acquisitions. It has deep roots in the three core business areas of acquisition of controlling rights of listed companies, mergers and acquisitions of listed companies, and capital operations of listed companies. With its profound professional strength and rich experience, it provides companies with full life cycle services from mergers and acquisitions to restructuring and capital operations, aiming to maximize corporate value and achieve long-term benefit growth.
