Causes And Economic Consequences Of Bonds Default Under The Background Of Deleveraging

With the rapid development of China’s economy,the leverage ratio of various industries has risen sharply,which seriously threatens the stability of China’s economy.In order to avoid economic risks and promote better economic development,the central government has implemented deleverage and other rescue measures for the China’s economy.However,in the long run,deleveraging and short-term policy implementation will have a negative impact on the financing environment of the real economy.As an important part of the capital market and financial markets,the bonds market provides an important financing channel for the real economy.With the progress of deleveraging and the gradual breakage of rigid redemption,the credit risk of the bonds market began to be exposed and accelerated.The number of bonds that have defaulted and the scale of bonds defaults have increased day by day,and the bonds markets has shown a trend of “defaulting against default”.The default of “16 environmental debts” issued by Shenwu Environmental Technology Co.,Ltd.is a typical case of private enterprises’ financial crisis and exposure of financial risks under the background of deleveraging.Shenwu Environmental Technology Co.,Ltd.is a listed private enterprise of environmental protection engineering.Its “16 environmental bond” failed to issue the principal and interest of the bonds on March 14,2018,the original maturity date,which constituted a substantial breach of contract.With the increasingly strong voice of the society for environmental protection,the state and local governments have promulgated and implemented a series of policies to promote the development of environmental protection enterprises,but the environmental protection enterprises represented by Shenwu Environmental Technology Co.,Ltd.encountered Waterloo in early 2018,and a number of defaults broke out.Therefore,as one of the representatives of this wave of default,bonds default of Shenwu Environmental Technology Co.,Ltd.has a farreaching impact on the development of the bonds market.In this paper,case analysis and literature analysis are the main research methods.Firstly,the background of deleveraging and related theories of bond default are elaborated.Secondly,the general causes of bond default,the impact of deleveraging and the economic consequences are analyzed with the trend of bond default in 2018 as the object.Thirdly,the case company Shenwu Environmental Protection is introduced,the basic situation and major events of Shenwu Environmental Protection are introduced,the default process of “16 Environmental Debt” is reviewed and sorted out comprehensively,and the macro-factors,industry factors,strategic factors and financial situation involved in the case company are analyzed in depth to verify the rationality of the general analysis.Strong analysis is scientific.Next,according to the three standpoints of debtor,bondholder and bond market,the economic consequences of bond default are analyzed.Then,based on the analysis of the causes and economic consequences of breach of contract,this paper puts forward some pertinent enlightenment.Finally,the last part is a summary.First,the default of bonds in 2018 was mainly the result of poor operation and deleveraging of bond issuing enterprises.Secondly,default of bonds will lead to lack of funds,damage the interests of bondholders,and promote the improvement of bond market management mechanism.Thirdly,creditors need to integrate their actual situation to formulate corporate strategy,avoid the high leverage rate caused by blind expansion,and pay attention to leverage risk to prevent bond default.Fourthly,investors and bondholders should enhance their awareness of credit risk,treat bond default rationally and safeguard their rights reasonably.Fifthly,bond market regulators should establish early warning mechanism for bond default,formulate measures to protect the interests of bondholders,and improve the supervision mechanism of rating agencies.With the increase of bond market risk,the management of bond trusteeship institutions needs to be strengthened to safeguard the interests of bondholders.The main innovations of this paper are as follows: firstly,the relationship between the factors of deleveraging and bond default is analyzed;secondly,the establishment of bond default early warning mechanism in bond market is proposed to standardize the management of credit rating agencies and creditor’s rights trusteeship agencies.This paper hopes to help enterprises formulate appropriate strategies and business models,control the leverage rate of enterprises,effectively deal with the impact of deleveraging,and prevent bond default through case analysis and inspiration.It also hopes to help investors and bondholders reduce the losses caused by bond defaults and provide effective advice to bond market regulators.