Research On The Rigid Payment Of Corporate Bonds In China

In March 28,2016,the Dongbei Special Steel Group Co.,LTD.announced that the company issued 2015 annual first short-term financing bond "15 Dong Te Gang CP001,involved the scale of 800 million yuan,because of failing to raise enough funds to repay all debts,which constituting a substantial breach.In a few months,10 bonds of Dongbei Special Steel Group have continuous breached,which involved breach of contract amount up to 7 billion and 170 million yuan,became the first local state-owned enterprise whose bond defaulted and continuous breached in China.In recent years,with the continuous development of China's financial market,issuing bonds have became an important way of financing for many companies to obtain long-term and stable capital flows.Not only can debt financing produce a "tax shield" effect,which provides financial leverage for companies and prevents the dispersion of corporate control.But also can the risk of the bond market be far lower than the stock market,therefore debt financing is wild accepted by investors and financing entities.In developed bond market,the bond default event occurs in many companies,because of the poor management,lack of cash flow and other issues.But there is an implicit rule in China's bond market called "rigid payment",when the corporate bonds have credit risk,by using their own funds to pay,applying for government credit guarantees,seeking help from third parties and so on,which can ensure the full payment of debt service.Although these behaviors preserve the stable development of China's bond market and protect the interests of bond investors in the short term.However if things go on like this,not only the efficiency of market and the pricing function of interest rates will be influenced,but also the risk awareness of investors will be weaken,as well as conceal the accumulated risks in financial markets.Once the enterprise funds breaks without the support of government or a third party,it will cause the panic of the creditors and the shock of the bond market,finally ruins China's financial order.Therefore,breaking the "rigid payment" system is the inevitable trend of the long-term development of China's bond market.Standing on the viewpoint of "rigid payment",I have introduced the concept and background of rigid payment,from the perspective of the market,investors,issuers and others,which analyze the negative effects of the "rigid payment" system on the development of China's bond market,and outlook the future development trend ofcorporate bond rigid payment.This essay took the first default bond of the Dongbei Special Steel Group "15 Dong Te Gang CP001" as example,using literature research,theoretical analysis and comparative analysis to introduce the development process of the Dongbei Special Steel Group bond default events and the overall response of bond market.I analyze the reasons,which caused this bond default event and why bond default event did not end up with rigid payment.At the end of this essay,I come up with some suggestions on the rigid payment of corporate bonds in China.