Causes And Early Warning Analysis Of Loncin Holdings Bond Defaul

Since its establishment,China’s bond market has developed and become increasingly important in the capital market.Along with domestic steadily growing economic environment and our bond market is under the protection of “rigid payment”and government implicit guarantee for a long time,the bond market has been at a low risk.However,the default of “11 Chaori Solar Bond” in 2014 broke the traditional concept of rigid payment on bonds,and China officially entered a period of default tide,with bond defaults increasing.In 2019,factors such as macroeconomic downturn and policy regulation,with the impact of the COVID-19.A large number of enterprises were experiencing capital shortages and insolvency,leading to a growing frequency of defaults in the bond market.All these severely affected the normal operation of China’s bond market,weakened investors’ confidence and endangered the stability and security of China’s financial market system.Against this background,it is necessary and crucial to study the default risk in the bond market and propose corresponding precautions.Using the case analysis method,literature research method,quantitative and qualitative analysis method,taking the bond default of Loncin Holdings as the entry point,this paper explores the current situation of bond defaults in China,analyzes the internal and external causes of Loncin Holdings’ default,and accordingly puts forward suggestions to reduce corporate bond defaults in order to promote the sound operation of the bond market and maintain the security of the financial system.First,the paper defines and introduces the relevant concepts and models,followed by a case discussion about Loncin Holdings based on relevant theories.Secondly,this paper makes a brief introduction to the operation of Loncin Holdings and its bond default.In May 2021,Loncin announced that it could not repay the matured debt and its debt crisis has been in full swing since then.Thirdly,this paper analyzes the external and internal causes of bond defaults triggered by Loncin Holdings through the collection of data on the general environment in China,the development of the industry to which Loncin Holdings belongs,the changes of financial condition and the operation of the company during its expansion period.Fourthly,this paper constructs an early warning mechanism and analyzes Loncin Holdings through Z-score model construction and KLR signal analysis.Finally,the paper finds that the external reasons are mainly lies in the impact of COVID-19,which narrowed the profit space of the industry and weakened the domestic financing environment.The internal reasons include aggressive expansion strategy,deteriorating financial situation,weak profitability,weakened financial liquidity,unreasonable capital structure,frequent pledges and freezes of equity,and repeated guarantees to subsidiaries.Also,large amounts of funds occupied by related parties could be counted in.Referring to all above,it raises four suggestions for regulators and bond-issuing enterprises to prevent bond defaults.For instance,regulators should strengthen supervision and bond-issuing enterprises need to reasonably choose their development strategies and optimize their capital structures.At the same time,an early warning mechanism should be established to prevent default.