Case Study On Bond Default Of Luowa Group

In recent years,China's financial market has developed rapidly,and bond issuance and transaction volume have increased rapidly.Compared with equity financing,bond financing has natural advantages such as tax shield effect,financial leverage effect and non-diversified equity.Therefore,most companies use bond financing.However,due to the underdevelopment of China's capital market and the inadequate bond financing system,in order to protect the interests of investors,rigid payment has always been a distinctive feature of China's bond market.In 2014,the“rigid redemption” of the first default bond in the bond market was broken,and the phenomenon of government undercover has become less and less.Related bond default events are not uncommon,and the scale of bond defaults is also increasing.The subject of bond default involves various types of enterprises including small and medium-sized private enterprises.On the one hand,under the impetus of the "de-leveraging policy",banks' requirements for credit qualifications have increased,and financing channels for small and medium-sized private enterprises have been blocked.On the other hand,in the beginning of 2020,countries all over the world suffered from a pneumonia epidemic caused by new coronaviruses.The resumption of work by various enterprises has been slow,and the consumption level of the people has been greatly reduced.This undoubtedly has a huge impact on small and medium-sized private enterprises with poor risk resistance.So that a large number of enterprises are facing bankruptcy.Luowa Group is a typical family-owned private company.Its main business is dairy products business and daily chemical business.The main financing method is to issue bonds.In the first half of 2014-2018,Luowa Group issued a total of 14 bonds,with a total of 7.25 billion yuan raised.Since the bond "17 Luowa CP001" constituted a substantial default on December 6,2018,a series of defaults occurred on the Luowa Group bonds,which triggered cross-default clauses one after another,resulting in the subject's rating and debt rating being lowered one after another.Yuan,the group had to go bankrupt and reorganize.This article takes Luowa Group as the research object and uses a variety of analysis methods to deeply analyze the reasons for its bond default.After a series of studies,it was found that there are three main reasons for the default of the bond ofthe Luowa Group.First,the concentration of the shareholding of the Luowa Group is too high.The governance structure is imperfect,the internal control is invalid,and the overall strategic error.Second,the company is not doing well,the cost control is weak during the period,and the cash flow management is improper.Third,the rating agency's rating adjustment lags behind,and supervision is insufficient.Based on the above three reasons,this article makes the following suggestions: First,formulate a reasonable strategy and improve internal governance,mainly to improve the company's risk prevention awareness,formulate expansion strategies and investment plans that are in line with the company's actual situation,and at the same time strengthen the workforce to ensure the company Have sufficient backup power to strengthen the company's information disclosure system.The second is to improve the company's operating conditions,increase product innovation,expand market share,and increase people's dependence on brands.Internally reasonably improve the company's financial situation,strengthen cost control during the period,optimize the debt structure,and improve the level of cash flow management.The third is to improve the credit rating system,change the charging model,enhance information transparency,and thoroughly solve the problem of lagging rating adjustments,so that credit rating agencies can play their due value.The regulatory authorities should unify the regulatory standards and appropriately increase the subsequent penalties for bond defaults.Finally,this article puts forward a series of suitable suggestions for preventing bond defaults for the cause of the bond default of the Luowa Group,hoping to bring reference value to other private enterprises similar to the Luowa Group,but also to corporate managers,bond investors and The bond market regulators provide some useful lessons for the normal operation of the bond market and ensure its long-term development.