Case Study On Bond Default Of Brilliance Auto

As an important part of China’s capital market,the bond market is the main place for enterprises to carry out financing activities.With the default of the bond "11Chaori Bond" in 2014,the credit risk of China’s bond market began to be exposed,and defaults have occurred frequently since then.At present,the nature of defaulted enterprises in China’s bond market also presents a new situation: the amount of defaulted bonds of state-owned enterprises is gradually increasing.Brilliance Auto,as a local state-owned enterprise with AAA main credit rating,has 193.3 billion yuan assets and ranks top in market share in the automobile manufacturing industry.It has defaulted on its bonds and entered bankruptcy reorganization.Therefore,the case of Brilliance Auto’s bond default is selected for in-depth analysis,which has certain typicality and practical significance.The paper introduces the basic overview of Brilliance Auto,its bond financing situation and its bond default process.The causes of its default are mainly analyzed in terms of macroeconomic factors,industry development factors,operational management factors and financial factors.Then the PFM model is applied to measure its credit risk level.The study concluded that macroeconomic factors as well as industry development factors in China have increased its default risk to a certain extent.However,the main reason for Brilliance Auto’s bond default is its internal reasons.Firstly,the group’s capital investment in the research and development and construction of its own brand failed,resulting in the weakness of its own brand.Secondly,Brilliance Auto’s operating body and financing body were misaligned,resulting in the parent company having a large amount of concentrated liabilities,but having to rely on its subsidiaries to repay its debts.Third,the group adopts a decentralized fund management model and has weak control over its subsidiaries,so the parent company cannot deploy the funds of the whole group and its subsidiaries for debt repayment.Finally,the main source of funding for debt repayment for the parent company is external financing.The impending divestment of BMW Brilliance has impacted its refinancing ability.The PFM model’s measurement of the default probability of Brilliance Auto’s parent company shows that its default distance is shrinking,further confirming its high risk of default.In view of the reasons for Brilliance Auto’s default,corresponding suggestions are made from three aspects: debt issuing enterprises,regulators and investors.Firstly,the bond-issuing enterprises should improve their own R&D level and brand competitiveness,get rid of the reliance on joint venture brands,have proper control over subsidiaries,and establish a sound risk management system.Secondly,regulators should strengthen the construction of the credit rating system,establish a database of default distance in the bond market,and steadily promote the reform of the registration system.Finally,investors should be rational about the mother-weak-son strong group,enhance their own risk awareness,strengthen post-investment management,learn the corresponding laws and regulations,and also diversify their investment with their own risk tolerance.