Research On The Causes And Countermeasures Of Default Of Credit Bonds Of "Strong Child And Weak Mother" Group

The first default bond appeared in my country’s bond market in 2014,which marked the breaking of the "rigid redemption" rule in the bond market.Since then,bond default events have continued to occur.Since 2018,there have been large groups of defaulting entities in the bond market,and the scale of defaulted bonds has grown explosively.Relying on their huge asset scale,group companies are more likely to issue large-scale credit bonds.Therefore,when the group is in financial distress,it usually involves multiple debts with relatively large amounts.Large bonds have a greater impact on the bond market,and among the group defaulting entities,the “strong child and weak parent” group entities have a more prominent impact.Groups with “strong children and weak parents” generally use the parent company as the main body to issue bonds to raise funds within the group,resulting in a large number of bonds issued by the parent company as the main body.Once the parent company has liquidity problems,it often affects multiple bonds,causing a greater impact on the bond market and the financing environment.In the second half of 2020,Brilliance Group,Yongmei Group and Tsinghua Unigroup successively defaulted on their bonds,which had a significant impact on the bond market and financing environment.These three group companies all have the typical characteristics of "strong children and weak mothers".In poor condition and large scale of debt,core subsidiaries have a masking effect on the parent company’s credit risk,so the credit risk at the parent company level is much higher than that of the group as a whole.This paper selects the group defaulting entities with obvious characteristics of "strong child and weak parent" from 2014 to the end of 2021,studies the credit risk characteristics of the group parent company,and analyzes the issuer’s disposal of defaulted bonds.The results of the study show that among the default entities of the "strong child and weak parent" group,there are significant differences in the financial status reflected in the consolidated statement and the parent company’s statement.Due to excessive debt scale,insufficient monetary fund,poor quality of earnings and the lack of corporate control,the parent company’s own credit risk level is much higher than that of the group as a whole,and the risk level of bonds issued by the parent company as the main body is underestimated by the market.This paper selects Brilliance Group from 13 group samples for in-depth analysis.Brilliance Group is a key local state-owned enterprise in Liaoning Province and has a great influence in auto industry.With the characteristics of "strong child and weak parent",most of the group’s operating income come from the core listed subsidiaries,and the parent company has been in a state of loss for three years before the bond default.This paper analyzes the reasons for Brilliance Group’s bond default from both external and internal levels,In terms of external factors,mainly affected by the slowdown in macroeconomic growth,the regional economic downturn in Liaoning Province and the decline in the prosperity of the automobile industry,Brilliance Group is facing greater operating pressure.Internal factors can be divided into two levels: financial and operational.Financial factors include the parent company’s poor quality of earnings,excessive debt scale,and insufficient self-owned currency funds.At the operational level,the use efficiency of debt funds is low,the control over core subsidiaries is insufficient,and the decentralized fund management results in insufficient control over funds.The default of Brilliance Group’s bonds is the result of a combination of the above factors,but internal factors play a decisive role.Due to the above problems,the parent company’s own debt repayment ability is seriously insufficient.When the core subsidiaries are in poor operating conditions or their credit enhancement support to the parent company is reduced,the default risk of the parent company will be exposed immediately.According to the results of the case study,this paper proposes preventive measures against bond defaults from the perspective of the issuer,emphasizing that the parent company of the group should pay attention to the risk of "strong child and weak parent".At the financial level,it is necessary to improve its own profit quality,control the scale of debt,and increase available monetary funds to improve independent solvency.At the operational level,it is necessary to improve the utilization efficiency of debt funds,adopt an appropriate group fund management model,and strengthen the substantive control over core subsidiaries.In the process of Brilliance Group’s disposal of defaulted bonds,there are problems such as weak repayment willingness and low disposal efficiency.This paper proposes solutions from the perspectives of disposal subjects and disposal mechanisms.The disposal subject should actively undertake the debt repayment obligation,choose an appropriate disposal method to improve the disposal efficiency of the defaulted bonds,and protect the interests of creditors to the greatest extent.The disposal mechanism is the driving force behind the market-oriented transformation of defaulted bonds and the establishment of a market-oriented disposal mechanism can fundamentally solve the existing problems in the disposal of defaulted bonds.