The question of increasing equity capital to offset debt is done by swapping or conversion. The aim of this article is to clarify the key elements to take into consideration for this type of transaction.
Introduction
A debt equity swap involves a company’s creditor becoming a shareholder of the company by converting the claim or debt instrument s/he holds against the company into shares in the company.
Debt to equity financing plays a significant role in the financial landscape of Nigeria. As the nation strives for economic development, understanding the dynamics of financial activities, including the capital structure of institutions and corporations, becomes crucial.
In its simplest form, corporate debt refers to financial obligations owed by one entity to another, encompassing loans, lines of credit, secured and unsecured debt, amongst others. On the other hand, equity pertains to ownership interests, typically in the form of shares or stocks. Equity investment involves purchasing and holding shares in anticipation of returns from dividends and capital gains, granting shareholders voting and participation rights.
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