Experts at corporate restructuring Singapore reveal that debt for equity swapping can provide new growth opportunities to the companies with a proactive and effective approach.
When a company is in financial difficulty but is looking for some sustainability solutions, it is possible to consider debt for equity swapping as a reliable solution to successful restructuring. Experts recommend this as a trusted option to strengthen your balance sheet and handle capital as well as borrowings.
Debt for equity swap means the creditor is ready to convert the owed debt by the company into some equity in the same company. As a result, the company issues equity to the respective creditor considering that the debt is extinguished, released, or discharged.
For creditors, the debt-to-equity swapping technique helps to avoid the cost of recovering debt through traditional processes. It may also help the creditor to participate in the company’s future growth. It is possible to use debt for equity swap method for various situations:
- To handle debt restructuring with the major creditor in the non-banking organization.
- To alter shareholder’s debt and equity proportion to improve the balance sheet of the company.
- To set up a strategic alliance for long-term benefits from major suppliers.
Corporate Restructuring Singapore Guide: Understanding debt and equity swaps technique
Companies that prefer using debt to equity swapping techniques to handle huge financial distress including business losses, cash flow problems, and substantial decline in income or revenues. When it is clear to the lenders that the company may fail to repay pending debts, mainly not within the given time period, the lender can consider debt and equity swapping to avoid any losses in the future.
Lenders are usually interested to find deals that can enable companies to maintain viability. Other than this, when lenders know that a company may become bankrupt even after debt cancellation, they will prefer taking advantage of debt swapping for availing of some equity interest in the company. This is mainly preferred because if liquidation happens while doing Singapore debt restructuring, the debt holders are paid before equity holders.
It is important to do careful planning and proper execution of debt to equity swapping. The non-statutory debt to equity swapping that occurs between participating creditors and the company is usually a very simple and easy process. In this scenario, the company is expected to play the main role in preparing as well as negotiating various types of documents including share issues, debt forgiveness, and shareholder-related agreements. If the debt-equity swapping technique is implemented by following statutory procedures, it can appear more expensive and difficult to implement. This type of swapping is generally handled by insolvency practitioners and the directors of the company have limited control over the entire process.
Singapore debt restructuring experts state that there are so many aspects that one should keep in mind while considering debt-equity swapping:
- It is necessary to receive approvals and consent from shareholders.
- Get accounting and tax treatment for debt-equity swap.
- Handling creation of various new shares, disapplication from shareholders, and amendments in the constitution.
- For listed companies, it is necessary to obtain all the rules of required exchange.
Careful implementation of all procedures with the help of corporate restructuring Singapore service providers can ensure an incredible range of benefits in the long run.