An Analysis Of The Causes Of Corporate Bond Default

Since the development of China’s bond market for nearly 30 years,the balance of custody has reached 90 trillion yuan,which is now the second largest bond market in the world.However,with the introduction of new regulations and deleveraging policies,corporate financing channels continued to tighten,leading to frequent defaults of listed corporate bonds of small and medium-sized enterprises.In 2018,the total number of default cases exceeded the previous 4 years,bringing twists and turns to the stable development of China’s bond market.The number of private enterprises in default accounted for the highest proportion,and the amount of financial thunders behind the default was increasing.As the industry leader,the consequence of default of listed companies is not only the damage to equity investors and bond holders,but also the collapse of the entire industrial chain and local leading enterprises,and the confidence of the entire financial market.Therefore,it is of great significance to study the reasons behind the bond default for the prevention of business risks and investor protection.Based on the analysis of the macro environment of bond default,it is found that China’s economy is in the stage of GDP growth decline,both industrial added value and consumption show a downward trend,resulting in a decline in the growth rate of enterprise development.At this stage,the financial environment under the deleveraging policy is in a strong regulatory state,and the ability of enterprises to refinance through creditor’s rights is significantly reduced,and the way of private placement financing has long been difficult due to the reduction of new regulations.Under the macro environment,the business prospects of the Chinese enterprises are not optimistic,which further leads to the continuous decline of the stock market,which has become the last straw to bring down the enterprises that have been financing through stock pledge in the early stage.In this paper,Kangdexin composite materials group Limited by Share Ltd(hereinafter referred to as"angdexin Co.,Ltd.")is selected as the research case,which main business is optical membrane materials.The company experienced rapid development in scale after its listing,but in 2019,there were 4 bond defaults.The financial statements showed that the monetary fund of more than 10 billion yuan could not repay the bonds of RMB1 billion scale.The company had a huge amount of inflated profits and misappropriation of funds by major shareholders.The supervision of external audit institutions is not in place,which makes the company’s financial fraud hidden for 5 years.The lag of credit rating adjustment between domestic rating agencies and international rating agencies also indicates the low efficiency and substandard rating quality.At the same time,the problems in internal supervision,strategic errors,corporate governance and other aspects are the root causes of bond default.In the early stage of China’s relatively loose financing environment and rapid economic growth,enterprises have not exposed the company’s operational risks when they have borrowed heavily,made diversified investments and made blind development.However,as the tide recedes,the internal problems of enterprises under the economic downturn are exposed one by one and eventually lead to bond default.How to do a good job in business management,prevent debt crisis,how to avoid the risk of thundering,and how to effectively identify the financial risks in bond investment are the urgent problems to be solved.This paper first makes a statistical analysis of the default of bonds in China,from the current situation of the development of the bond market in China since the occurrence of the first default case in 2014,to the nature of the default enterprise and the rating of the issuers.Then,it summarizes the default cases of Kangdexin Co.,Ltd.,nd describes the default situation and consequences of the bond.Secondly,according to the systematic and non systematic risk factors of the default events of Kangdexin Co.,Ltd.,the paper analyzes the reasons for the default of the enterprise from the perspective of macro-economy,industry development to development strategy,corporate governance and financial status,and finds that the enterprise has problems in equity structure,internal governance and over investment.Finally,the paper gives the inspiration and suggestions on bond default.Enterprises should optimize and integrate corporate governance,financial structure and strategic development.Under the current environment of frequent bond default,investors should establish risk awareness,improve risk identification ability through their own professional improvement,and use portfolio investment to disperse investment risks.Through the research,we found that if the company has the problem of "one share dominating",resulting in the failure of the board of directors and the board of supervisors to play their role,the assets of listed companies may be transferred,and the defects of corporate governance will lead to bond default under the significant expansion of the company’s strategy.