Case Study On The Default Of Bonds In Sichuan Coal Industry Group

Once upon a time,rigid redemption was a major feature of the Chinese bond market,but in 2014,the rigid redemption of the Chinese bond market was broken.Since then,the default in the bond market has been increasing year by year.In 2018,there were 123 defaults on bonds in the Chinese bond market,and the total amount of defaults was nearly 120 billion yuan,setting a new historical record.As one of the key cutting excessive industrial capacity in China,the coal industry is under great pressure to operate.In June 2016,Sichuan Coal Industry Group(Chuan Coal Group),a state-owned coal company in Sichuan Province,incurred a bond default and became the first local state-owned coal debt to default.In the following two years,the Sichuan Coal Group has defaulted 8 consecutive contracts,and the amount that has not been paid by the end of 2018 has reached more than 4 billion yuan.Therefore,this paper chooses the Sichuan Coal Group as the research object,hoping to find out the reasons for its bond default,and hopes to provide advice for the company’s subsequent operations,to avoid repeated violations.After analysis,this paper believes that macroeconomic and industrial factors are one of the reasons for the default of the Chuan Coal Group bonds.After the Chinese economy entered a new normal,economic growth slowed down,which directly affected the development of the coal industry.Moreover,industries such as coal and steel have significant overcapacity,and the overcapacity will cause vicious competition in the industry.In addition,the current policy of de-capacity in the country will have a negative impact on the Chuan Coal Group in the short term: some of the up-front investment cannot be recovered,and it also carries a heavy resettlement cost of exiting the coal mine.Moreover,in recent years,the state has been actively encouraging the use of clean energy,which has led to a year-on-year decline in coal consumption in primary energy consumption since 2013.There are also many problems in the operation of the Sichuan Coal Group itself.First of all,the solvency of the Sichuan Coal Group is seriously insufficient,the asset-liability ratio is high,and the various debt repayment indicators are far from the reasonable range that is widely recognized financially.In terms of profitability,Sichuan Coal Group itself has been losing money in the three years from 2014 to 2016,and through horizontal comparison with Yangquan Coal in the industry,it can be seen that the Chuan Coal Group not only has low income level,but also the period expense.Very high,the overall profitability is much weaker than peers.The operating efficiency is also very low,and the lack of operational capacity causes the funds of the Sichuan Coal Group to be occupied by inventory for a long time,or occupied by accounts receivable for a long time.The efficiency of using the resources in the hands to obtain excess profits is far lower than that in the industry.enterprise.In terms of cash flow,there are also big problems.From the cash flow indicators,it can be seen that the Sichuan Coal Group has been relying on borrowing for a long time,and in this case,it is still blindly expanding its foreign investment.In addition,the growth capacity of the Sichuan Coal Group is also insufficient.Especially in the two years of 2014 and 2015,many growth capacity indicators are negative,indicating that the Group is not growing,but negative growth.There are so many problems in their own operations,which led to several bond defaults in the Sichuan Coal Group.In addition,the bond issuance supervision layer failed to do a good job of tracking and monitoring the bond issuers.The rating agencies issued a high rating,and the risk warning function of not playing a good tracking rating is also one of the reasons for default.In this paper,some suggestions for circumventing bond defaults are proposed for the above problems.The first is that enterprises should actively adapt to the economic trend and industry policies,and adjust the company’s business strategy in a timely manner according to different economic situations.In addition,in the company’s own business,we must constantly improve our own management and management,learn from the outstanding enterprises in the industry,and truly realize the value-added of corporate assets in the operation to ensure the stability of the corporate capital chain.It is also possible to consider introducing new capital injections to avoid maintaining business by borrowing only,and new shareholders may also bring new weather to the management of the group.Enterprises should also establish a financial early warning mechanism to provide early warning to the company’s management when the company’s financial situation is not good,so as to prevent problems before they happen.Moreover,for the bond rating agencies and the regulatory layer of issuing bonds,the regulatory layer should not only do a good job of issuing supervision,but also follow-up tracking and monitoring work,and focus on monitoring industries with industrial policies.For credit rating agencies,they should constantly improve their business capabilities and produce high-quality rating reports for enterprises.In addition,for institutions that issue false high ratings reports,there must be corresponding penalties.Finally,I hope that through the writing of this article,I can provide some suggestions for the operation of the Sichuan Coal Group.I also hope that I can provide more credit risk management advice for bonds to more enterprises.