Thus, getting the design right is critical:

• Debt-equity conversions should convert debt only of viable firms in the context of operational restructuring plans for the firms (which may include changing management), at fair value, and with banks holding the equity for a limited period only.
• NPL securitization should encompass a diversified pool of NPLs, with banks keeping some residual financial interest (“skin in the game”), under a legal and operational framework that will allow owners of distressed assets to force operational restructuring of firms and obtain the best value from those assets.

Source: Tackling China’s Debt Problem: Can Debt-Equity Conversions Help? | iMFdirect – The IMF Blog