A Case Study On Wintime Energy’s Bond Default

In recent decades,China’s bond market has achieved rapid development,and has become an important part of China’s capital market.It is worth noting that since 2014,the rigidity of bond market cashing has been broken,and bond default has become more normalized.In 2018,the number and amount of default of credit bonds exceeded the sum of 2014-2017.In 2019,the situation was more severe,and the number and amount of default of credit bonds have reached a new high.Bond default will not only affect the normal operation of the issuer,but also have a profound negative impact on the orderly development of the bond market.Therefore,it is of great practical significance to explore the causes of bond default for the issuers to prevent default risk and to maintain stable development of bond market.As the only private-owned enterprise in the coal industry,Wintime Energy is in the basic manufacturing industry.With a long history of bond financing,it has become a mature bond issuer but in the meanwhile it was one of the largest scale of bond default in 2018,which makes it the most typical case to do research on.This paper starts with the theoretical study of bond default,explains the important influence of cash flow and other factors on bond default;then,combined with the relevant background of this case,through the analysis of the impact of corporate operating activities,investment activities and financing activities on corporate cash flow,to explore the main causes of bond default of Wintime Energy.After that,based on the research,some suggestions were put forward to the bond issuer.This paper finds that Wintime Energy bond default as the result of many factors.First,in terms of operation,all business segments of the company operate normally,but the coal power integration linkage strategy had not been effective,and affected by the industry cycle and policies,the company’s main business income had not increased efficiency,and the scale of operational capital occupation was large.Second,in terms of investment,the company’s investment strategy committee was in a virtual state,and there were serious defects in governance,leading to some investment failures;the company’s investment in the coal sector was too radical,a large number of exploration rights were in a virtual state,and no production capacity was formed,leading to long-term occupation of cash flow;the company blindly implemented the diversified strategy,with excessive investment,scattered fields,long term,low investment efficiency,and short loans and long investments,resulting in cash flow imbalance.Third,in terms of financing,the company was affected by the strict regulatory policy of capital market and the attributes of private enterprises,so the financing cost was high and the financing activities were severely limited;the company’s radical investment and financing strategy leads to the gradual imbalance of debt structure,long-term high debt operation,short loan and long use,and a large number of assets were limited.Finally,due to the failure of bond issuance and loan renewal,the original tight capital chain collapsed.To sum up,the direct cause of Wintime Energy’s cash flow fracture and bond default is that the company’s financing strategy did not adapt to the change of capital market and its financing ability was limited;the fundamental cause is that the company blindly implemented the diversification strategy and excessively invests and finances.Therefore,this paper suggests that bond issuers should improve the internal governance structure,formulate reasonable corporate strategy and financing strategy,and pay attention to cash flow management.