Research On Default And Risk Response Of Kaidi Ecological Debt

Since 2014,China’s economic growth has slowed down and the economy has entered a new normal.In the context of economic downturn,China’s first bond industry officially announced default in 2014,which also means that the rigid cashing of China’s bond market officially withdrew from the historical stage.The credit risk problem in China’s bond market has also gradually become prominent.In 2019 alone,the number of defaulted bonds exceeded 100,more than the sum of the past three years.The problem of corporate debt default has been widely concerned by all sectors of society.The problem of corporate bond default has a serious negative impact on relevant stakeholders and society.Therefore,the study of the causes of corporate debt default and the risk prevention measures of corporate debt default is of great guiding significance to both academia and reality.As the "first share of biomass power generation" and the industry leader,Kaidi ecology ranked first in the biomass power generation industry ranking in 2018,far exceeding the second in the industry.He once claimed to become one of the world’s top 500 enterprises in 2020 and was once considered by investors as a potential stock of biomass power generation,but one after another,the financial reports could not be disclosed on schedule,the credit rating was downgraded,a large number of lawsuits were involved,the shares were suspended,and finally ended up with a dismal delisting,all due to the initial debt default.This paper uses the literature research method and comparative analysis method to analyze the default event of Kaidi ecological debt.Firstly,it integrates and combs the relevant literature on debt default and its related factors and risk prevention,and combs out the possible internal and external factors of Kaidi ecological debt default.Secondly,starting from the debt default factors sorted out in the literature review,combined with the specific cases of Kaidi ecological debt default and the facts disclosed in the company’s announcement and public documents of relevant departments,this paper analyzes the causes of Kaidi ecological’s financial difficulties.This paper holds that the internal factors causing the debt default of Kaidi ecology mainly include:(1)the enterprise management is too radical,chooses the expansion strategy that is incompatible with the enterprise’s own development,and spends a huge amount of cash to acquire a large number of assets;Moreover,enterprises acquire a large number of inefficient assets through restructuring,resulting in poor return on investment,resulting in further waste of funds;(2)The unreasonable capital structure,poor profitability and weak solvency of the company eventually lead to the fracture of enterprise cash flow: the asset liability ratio of the company is too high,and there is a problem of mismatch between assets and debt maturity.The weakening of enterprise operation ability leads to insufficient cash flow and poor solvency,which eventually leads to the occurrence of debt default.(3)The enterprise has serious related party transaction management problems,which leads to the occupation of the company’s funds by covering up the information of related party trading partners and transferring benefits to related parties in the name of related party transactions or paying wages on behalf of others;(4)The enterprise has internal defects,and the large shareholder Ling is superior to the management to control the company’s daily business activities and financial behavior.In addition,adverse external factors further aggravate the dangerous situation of enterprises and the speed of enterprise debt default.In 2017,the macro environment of the market went down,and enterprises were faced with tighter financing channels.The financing of Kaidi ecology was more difficult.Enterprises could not repay their existing debts through a new round of debt financing.In addition,the policy changes in the biomass power generation industry where Kaidi ecology is located have accelerated the elimination of the biomass power plants originally purchased by the enterprise,resulting in increased business risks.Finally,the industry profit model of Kaidi ecology is not mature,which aggravates the debt default risk of enterprises: on the one hand,the biomass power generation industry in which the enterprise is located relies too much on upstream raw materials,the bargaining power of the enterprise is poor,and the storage cost and transportation cost caused by the nature of raw materials are too high,resulting in the high operating cost of the industry;On the other hand,half of the on grid electricity price of biomass power generation industry comes from government fund subsidies.The slow return of enterprise cash flow has become another feature of the industry.Due to the deleveraging policy of the financial industry and the superposition of adverse factors of tightening enterprise financing channels,Kaidi finally fell into debt default.Finally,according to the above reasons,this paper puts forward corresponding risk prevention suggestions for Kaidi Ecology:(1)enterprises should reasonably choose enterprise strategy and expand to avoid the occupation of enterprise funds due to the long payback period of investment projects;(2)The company shall reasonably arrange the debt financing structure to avoid financial risks caused by excessive debt repayment pressure;(3)Enterprises should strengthen the management of related party transactions to avoid problems such as the occupation of related party funds;(4)The company should improve the internal control system to effectively avoid the principal-agent problem of enterprises;(5)Enterprises dynamically identify external risks and adopt dynamic strategies and capital structure adjustment according to changes in market environment and policies.(6)The government should reduce the proportion of government subsidies in revenue,and fully implement enterprise subsidies by clarifying the subject and time limit of subsidies.