Research On The Causes And Prevention Of Default Of Listed Corporate Bonds

Research BackgroundAfter more than 30 years of development history,China’s bond market has gradually matured and has become an important part of China’s capital market.In 2014,China’s bond market saw the first official public bond default event,that is,the “11 Chaori Debt” incurred a substantial default on interest payment,breaking the “zero default” and “rigid payment” situation in China’s bond market.In the past three years,the number and scale of bond defaults in China have shown an upward trend,and the scope of bond default has spread from private enterprises to local state-owned enterprises and even central enterprises.In the face of increasing frequency of bond defaults,China’s regulatory agencies have also stepped up a number of guidance documents to further regulate bond issuance and risk management.In recent years,under the background of weak global economic recovery,China’s economy is also facing downward pressure.Especially in some industries with overcapacity,the profitability and solvency of enterprises are declining.It may expose a huge credit risk due to insufficient liquidity.The chemical industry is an industry with outstanding contradiction in overcapacity in China.Many enterprises in the industry have suffered huge losses.Liuzhou Chemical Co.,Ltd(hereinafter referred to as "*ST Liuhua").is a listed chemical company which is a state-owned enterprises,and is also one of the largest chemical fertilizer production enterprises in Guangxi Zhuang Autonomous Region.In February 2017,*ST Liuhua was implemented a delisting risk warning due to continuous losses.In January 2018,the company entered the reorganization process.At the same time,the company’s issued bond “11 Liuhua Debt” was deemed to have expired in advance,and the remaining unpaid amount of 5.554 million yuan can’t be fully paid,and the company is at risk of being declared bankrupt due to failure of reorganization.Compared with developed countries,China’s bond market is relatively backward,and the situation of defaults is less than that of developed countries.Therefore,there are few documents on defaults in China’s bond market in theory.From a practical point of view,how to reduce the probability of the bond default occurs is of great significance to bond issuers,regulatory authorities,and bond investors.This is also a question worthy of our consideration.Research PurposesThis thesis has two main research purposes.(1)Exploring the reasons for *ST Liuhua’s corporate bond default.Based on relevant theoretical research,this paper attempts to review the process of *ST Liuhua’s corporate bond default,and explores the reasons for inducing *ST Liuhua’s corporate bond default from multiple angles.(2)Exploring the means of preventing corporate bond defaults.This paper aims to analyze the characteristics and common problems of most companies that have defaulted on bonds through descriptive statistics.We proposed precautionary means in hope of drawing lessons for participants in the bond market,by analyzing the case of *ST Liuhua,from the perspective of enterprises,regulators and investors.Main ContentOn the one hand,we read relevant literatures at home and abroad to understand the research status of bond defaults,summarized the research results of related parties,expounded the theoretical basis of bond default,clarified the characteristics of corporate bonds and corporate bond default risk,and analyzed the causes and effects of debt defaults in order to complete the literature review and theoretical analysis of this paper.On the other hand,we used descriptive statistics to analyze the status quo of China’s listed companies’ bond defaults,selected *ST Liuhua’s corporate bond default events as a typical case,and analyzed the causes and precautions of bond defaults,to complete the case analysis part of the paper.There are a total of seven chapters in this paper.The main contents of each chapter are as follows:Chapter 1,Introduction.We focused on the research purposes,research contents,and expected contributions of the paper in the context of the credit risk growth and default events in the bond market..Chapter 2,literature review.We reviewed and summarized the relevant research results at home and abroad around the definition,causes and preventive measures of the corporate bond default,and made a brief review.Chapter 3,theoretical analysis.From the theoretical basis of bond default,we theoretically defined the characteristics of corporate bonds and the characteristics of corporate bond risks,and analyzed the causes and effects of corporate bond default.Chapter 4,analysis of the current situation of bond default of listed companies.We analyzed the scale and default of corporate bond issuance,summarized the general characteristics of bond defaulting companies,and laid the foundation for subsequent case analysis.Chapter 5,the situation of *ST Liuhua bond default.We introduced the situation of *ST Liuhua,"11 Liuhua debt" and the source of repayment funds of "11 Liuhua debt",and reviewed the default process of corporate bonds.Chapter 6,analysis of the reasons for *ST Liuhua bond default.We analyzed the reasons for *ST Liuhua’s bond default from environmental factors,corporate governance factors and company management factors.Chapter 7,the prevention measures of Corporate bond default.In view of the bond default risk of *ST Liuhua,we proposed to prevent default risks from the perspective of bond issuers,regulators and investors,with a view to providing a reference for preventing similar risks.Main ContributionsThis paper intends to achieve the following expected contributions through theoretical analysis and case studies:(1)This paper analyzes the reasons for *ST Liuhua’s corporate bond default.At present,the number of the existing literatures about corporate bond defaults using case study methods in China is small.Most of the literatures uses empirical research methods to quantitatively study the bond market in China.The research results are mainly concentrated in the macro environment and the economic system.One of the purposes of this paper is to explore the reasons for the bond default in the specific company through the case study.(2)This paper summarize the prevention measures against corporate bond defaults.In terms of the prevention of bond defaults,the current existing literatures mostly elaborate on how to prevent the default risk of corporate bonds from the perspectives of the companies that issue bonds and market regulators,and the proposed recommendations are also relatively macroscopic.The number of documents that make recommendations from the perspective of investors is small.Therefore,in summarizing the prevention measures of corporate bond defaults,this paper aims to add investors’ perspective to summarize the prevention measures of corporate bond defaults and further improves the existing theories and viewpoints.