Analysis On Default Case Of Brilliance Auto Bonds

In recent years,China’s bond market has been developing fast,at the same time,bond defaults have occurred frequently.Several bond defaults of local SOEs occurred in the second half of 2020,highlighting the issue of bond risk management of local SOEs.A series of default events result in the increase of expected risks of local SOEs,the decrease credit of the credit rating agencies and the increase of the market financing costs.Brilliance Auto,once the largest domestic head car enterprise and the largest local state-owned enterprise in Liaoning Province,defaults on its bonds are both typical and representative.Firstly,this paper introduces the concept and theoretical basis of Brilliance Auto bond default,which is based on the financial risk early-warning model,static trade-off theory and liquidity risk hypothesis of debt maturity structure.The paper further points out that the default of Brilliance Auto bonds is the result of the comprehensive effect of internal and external factors: Brilliance Auto Group itself has problems in debt management,cash flow management,financial risk management and investment management.Among them,the debt management has problems of large scale of debts,unreasonable debt structure and contingent liabilities,and the cash flow management has problems of poor profitability of independent brands,weak liquidity of assets and poor refinancing capacity.However,from the external aspect,the lagging rating and false high rating of rating agencies have contributed to the generation of Brilliance Auto’s high debt,the industry was depressed under the epidemic situation,worsening the cash flow status of enterprises,weakening the profitability of Brilliance Auto and aggravating the occurrence of the default of Brilliance Auto bonds.Brilliance bond default is only a microcosm of the bond default of local stateowned enterprises in China,and there are the same problems in other local state-owned enterprises.Therefore,according to the problems arising in the process of bond default of Brilliance Auto Group,Suggestions are put forward for local SOE bond participants,namely local SOEs,rating agencies and local governments: local SOEs shall strengthen debt management and cash flow management,establish a financial early warning system,and develop independent brands to enhance competitiveness;rating agencies shall change the charging mode,establish a market-oriented rating mechanism,and enhance information collection capacity.