Deleverage And Bond Default

In 2014,the first defaulting corporate bond of Shanghai Chaori Solar Energy Science & Technology Co.,Ltd,heralds the beginning of bond default and the breaking of faith.The number and scale of bond defaults increased year by year and peaked in 2018.Regarding the reasons for the large-scale default of credit bonds,the leverage cycle can be traced back.During the period of credit expansion,many enterprises with high sensitivity to external environment and weak qualifications have flocked into the ranks of leveraged investors.They have chosen bonds as a financing tool in the capital market.However,once such subjects with weak credit qualifications encounter credit contraction period,their solvency will be challenged and deteriorated continuously until credit risk or even debt default occurs.This is not only the rule of capital market,but also the result of structural de-leverage,which realizes market clearance.WINTIME Energy Co.,Ltd.is the only private listed company in the coal sector.However,on July 5,2018,WINTIME Energy Co.,Ltd.encountered the biggest debt crisis since its establishment,that is,the substantial default of "17 WINTIME Energy CP004".The impact of default is very bad,both the bond market and the stock market have been greatly affected.The default of a listed company with a debt of 78 billion resulted in the collapse of more than 30 large banks and rental companies,affecting 2.1 billion bills,20 billion bonds and 40 billion loans.Therefore,the problems behind the default of WINTIME Energy Co.,Ltd.deserve our deep consideration.Based on the above background,this paper chooses the bond default of WINTIME Energy Co.,Ltd.as a case study to explore the relationship between the current stage of China’s leverage cycle and the normalization of bond default events.Firstly,this paper classifies the risk factors of bond default according to the early warning analysis framework of bond default,which lays a foundation for case analysis.Secondly,it studies the leverage cycle of China and whether it has relationship with the change of bond default rate.Secondly,it analyses the behavior of WINTIME Energy Co.,Ltd.in the two stages of leveraging and de-leveraging,to find the reasons for default,and then from the company’s fundamentals,through financial analysis to find weaknesses,while using Z-score model to verify the existence of default risk;finally,according to the conclusions of the case,put forward relevant suggestions.The main conclusions are as follows: Firstly,credit contraction under deleveraging is the trigger of recent bond default events.Financial risk prevention,deleveraging and strong supervision lead to double tightening of money and credit,superimposed weak economic growth and insufficient development of the bond market itself.The comprehensive effect leads to the continuous increase of bond default rate,especially for private enterprises.Secondly,through case study,the main credit risk of WINTIME Energy Co.,Ltd.lies in excessive borrowing during the period of leveraging to expand the scale of assets,high interest-bearing liabilities rate all the year round.And then it encounters the financing environment impact of tightening in the period of deleveraging,which makes it refinance be very tricky.Its Z value has been ar below the level of the alert line,so we should pay attention to credit risk earlier.Thirdly,bond issuers should take the initiative to control the asset-liability ratio in a reasonable range to adapt to the process of deleveraging,which is still in the stage of deleveraging in the leverage cycle.Fourthly,the policy should focus on the "zombie enterprises" of state-owned enterprises and avoid hurting private enterprises in good conditions.