Research On Bond Default And Early Warning Of Private Enterprise Group

With the fast development of China's capital market,the credit bond market has grown rapidly.Both the bond issuance of primary market and the trading volume of secondary market have increased in high-speed.Bond is playing an important role in financing.However,due to the slowdown of economic growth and the adjustment of industrial structure,risk of bond default has also gradually released.On March 5th,2014,the “11 Chaori Bond” declared the first substantial default.Since then,bond defaults begin to normalize.In 2019,both the number and the size of defaults have significantly exceeded previous years.Due to the improper corporate governance,aggressive business strategy,and such problems,private enterprises are facing high risk of bond default.Among them,private enterprise groups need special attention.Multiple private enterprise groups have encountered defaults since 2019.Generally,enterprise groups have large size of assets and debts.Once liquidity crisis occurs,multiple bonds are involved,which will cause a great impact on capital market and regional economy.As a typical private enterprise group,Sanbao Group Co.,Ltd.owns two listed companies and a number of non-listed subsidiaries.The group's business involves multiple sectors,including retail,health care,information manufacturing and so on.The study selects "12 Sanbao Bond" as the case,and explores the causes of bond default from both external and internal perspectives,specifically in an enterprise group frame.We find that Sanbao Group adopts a diversified strategy against the decline of traditional retail.The continuous expansion of investment scale increases debt pressure on the group,especially short-term debt.In terms of fundraising strategy,the parent company raises funds in the name of the entire group,but quality assets and main business are concentrated in core listed subsidiaries.As a result,the parent company has been overburdened and lacks solvency,which leads to its shortterm liquidity tension and finally triggers bond default.This case reflects the risk of diversification and credit risk at parent company level,which are the common problems in private enterprise groups.Based on the analysis above,an early warning system is set up,which includes four dimensions: macroeconomic cycle,industry risk,financial risk and management risk.Each dimension has its own warning indicators and characteristics.Besides Zscore model,auxiliary indicators that reflect short-term liquidity and financial risk of enterprise group are added.The dimension of management risk includes three aspects,which are external early warning,internal operations of the group and listed subsidiaries.In order to verify the effectiveness of the early warning system,Jinggong Group Co.,Ltd.is chosen as another example.By comparing the result of early warning system and the rating agencies,we can verify that the early warning system has better performance in accuracy and timeliness.The study of “12 Sanbao Bond” default shows the inspiration in three aspects,including financing dilemma of private enterprises,the risk of diversification,the risk of weak parent company with strong subsidiaries in enterprise groups.Finally,suggestions are given to the government,private enterprise groups,and bond investors,with the hope to provide reference for the control of credit risk and the healthy development of China's bond market.