Bandung – A debt-to-equity swap (DES) has become an increasingly popular strategy for companies seeking to improve their financial condition through debt restructuring. However, a recent study reveals that the success of such restructuring depends not only on reducing corporate liabilities but also on accurately determining the fair value of shares to avoid potential tax disputes. The research was published in 2026 by Fachmi Pahala and Fajra Octrina from Telkom University in the East Asian Journal of Multidisciplinary Research (EAJMR).
The study examines PT Sidomulyo Selaras Tbk., an Indonesian publicly listed company preparing to implement a debt-to-equity swap following the enactment of Indonesia's Minister of Finance Regulation Number 79 of 2023 concerning Valuation Procedures for Tax Purposes. The regulation establishes a standardized framework for determining the fair value of financial instruments that do not have directly observable market prices, including shares issued through debt conversion.
A debt-to-equity swap allows a company to convert part or all of its outstanding debt into equity, enabling it to reduce financial obligations while strengthening its capital base. Although the strategy can improve a company's financial health, an inaccurate conversion price that does not reflect the fair market value of the shares may create tax exposure, particularly when the transaction involves related parties.
To estimate the fair value of the company's shares, Fachmi Pahala and Fajra Octrina adopted a quantitative descriptive case-study approach. The valuation employed the Discounted Cash Flow (DCF) method using the Free Cash Flow to Firm (FCFF) model, which is considered appropriate for highly leveraged companies undergoing significant capital restructuring. The analysis utilized PT Sidomulyo Selaras Tbk.'s annual financial statements from 2019 to 2024, interim financial statements for 2025, corporate action disclosures, and supporting economic data used to prepare financial projections.
The findings indicate that the estimated fair value of PT Sidomulyo Selaras Tbk.'s shares after the planned debt-to-equity swap is IDR 29 per share, substantially lower than the company's proposed conversion price of IDR 55 per share. This gap suggests that the planned conversion price does not fully represent the company's underlying economic value based on projected future cash flows.
Beyond estimating fair value, the study demonstrates that the debt-to-equity swap would significantly improve the company's financial structure. By converting debt into equity, total liabilities would decline while shareholders' equity would increase through the issuance of new shares. As a result, the company's capital structure would become considerably healthier than before the restructuring.
The improvement is also reflected in the company's key financial ratios. The Debt-to-Equity Ratio (DER) would decrease from 5.176 to 0.586, while the Debt-to-Asset Ratio (DAR) would fall from 0.838 to 0.369. Meanwhile, the equity ratio would increase from 0.162 to 0.631. The company's short-term liquidity would also strengthen, with the Current Ratio rising from 0.301 to 0.959 and the Quick Ratio improving from 0.230 to 0.731. These results suggest that the debt-to-equity swap could effectively reduce leverage while enhancing the company's liquidity position.
Despite these financial benefits, the study highlights important tax implications. The difference between the book value of the converted debt and the fair value of the newly issued shares may be treated as taxable income arising from debt forgiveness. According to the researchers' calculations, the potential gain from debt relief amounts to approximately IDR 28.79 billion, resulting in an estimated corporate income tax liability of around IDR 6.33 billion under the 22 percent corporate tax rate or approximately IDR 5.47 billion if the company qualifies for the reduced 19 percent rate.
According to Fachmi Pahala and Fajra Octrina from Telkom University, determining the fair value of shares is essential not only to support effective financial restructuring but also to ensure that the conversion price complies with Indonesia's tax regulations. A fair valuation provides stronger evidence that the transaction reflects market value and helps reduce the risk of fiscal adjustments during future tax audits.
The study offers valuable insights for companies considering debt restructuring, as well as investors, tax consultants, and policymakers. For businesses, the findings demonstrate that a debt-to-equity swap can be an effective tool to reduce liabilities, strengthen equity, and improve liquidity. However, these advantages should be accompanied by an objective and well-supported share valuation to ensure that the conversion price accurately reflects the company's economic value. For regulators, the research reinforces the importance of Minister of Finance Regulation Number 79 of 2023 as a benchmark for assessing the fairness of transactions involving financial instruments that are not actively traded in the market.
The research also contributes to academic discussions by integrating three interconnected aspects that are often examined separately: financial restructuring, share valuation, and tax implications. The findings demonstrate that evaluating a debt-to-equity swap should extend beyond improvements in financial ratios and balance sheet performance to include fair value assessment and compliance with tax regulations.
Authors
Research Source
Article Title: Fair Value Estimation of Shares and Tax Liability Implications of the Debt-to-Equity Swap Plan Following the Implementation of Minister of Finance Regulation Number 79 of 2023: A Case Study of PT Sidomulyo Selaras Tbk.
Journal: East Asian Journal of Multidisciplinary Research (EAJMR)
Publication Year: 2026
DOI: https://doi.org/10.55927/eajmr.v5i7.229
Journal Link: https://journaleajmr.my.id/index.php/eajmr
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