A Case Study On The Bond Default Of Zhuhai Zhongfu

With the deregulation of issue terms of bonds,the issuing scale of bonds issued by Chinese corporations keeps rapidly climbing and the variety,at the same time,follows an upward trend.Bond has becoming a main channel of corporate direct financing.However,among the plenty of bonds newly issued,there are also some bonds issued by companies that do not have a positive future or good credit.This problem,under the background of economic downturn,triggers a flow of credit risk.After the Chinese government publicly allows the existence of default,Chaori Bond,the first defaulted bond,defaulted and started “the era of bond default” of Chinese bond market.This paper is based on the bond default case of Zhuhai Zhongfu,the first company in China that managed to pay off the principal and interest of the defaulted bond independently.Firstly,this paper,qualitatively and quantitatively,analyses what causes the default of “12zhongfu01”.At the industry level,the downstream industry of where the company exists,beverage industry,struggles in a difficult environment,which in turn reduces sales and profit of the company;At corporate level,qualitatively,narrow business range,dependence on main clients and frequently-changed management work together and lead to low anti-risk capability,which inevitably leads to poor operation and less profit;Quantitatively,falling firm liquidity caused by poor profitability,solvency and financing capacity decides the company's failure to raise enough money for bond due in spite of the company's good reputation and sound assets.Secondly,this paper focuses on economic consequences of bond default,namely,higher financing cost,negative changes of company share price,decline of the credit of the company's premature bond and negative influence on the bond market as a whole.In this part,the paper contains both qualitative analysis and quantitative verification on the possible economic consequences of bond default.Finally,based on the case analysis and experience from developed bond market,this paper puts forward case revelations respectively from the perspective of bond issuer,bond investor and the macro bond market.