Research On The Causes Of Bond Default And Risk Warning Of Private Real Estate Enterprises

With the need for reform,China’s bond market has shown rapid development,the market system has been improved,the number of bond issues has been rising,and the types of bonds have been enriched,making bonds a powerful means of financing and an important tool for real estate enterprises with large capital needs.However,since the first defaulted bond in China in 2014-"11 Chaori Bond"-the scale of defaults in China’s bond market has been expanding,and by the end of 2022,the number of defaulted entities in China’s bonds had exceeded 300 and the number of defaulted bonds had exceeded 1,000.In the new wave of bond defaults in 2022,there was an explosive increase in the number of defaults in the real estate sector and it was mainly concentrated in private enterprises.Some real estate enterprises adopted an aggressive expansion strategy during the early boom phase and were affected by factors such as economic downturn and epidemic prevention and control,especially private real estate enterprises with weak anti-risk capacity and cost-shifting ability,their profit space was significantly compressed and their endogenous liquidity was increasingly depleted,which,coupled with tightened external financing and difficulties in asset realisation,accelerated credit risk exposure and eventually triggered liquidity difficulties.The surge in bond defaults has not only brought panic to the bond market,but also substantial losses to the majority of investors.Therefore,the identification of the risk factors behind China’s real estate enterprises and the effective early warning of their bond default risks are issues that need to be addressed urgently in China’s real estate industry and the bond market as a whole at present.In this context,this paper takes private real estate enterprise Zhengrong Real Estate as an example and conducts a more systematic study on the causes and risk warning of bond default of the case company.Firstly,the causes of bond default are analysed from three levels: macro environment,company management and financial situation.Among them,corporate management is explored from four perspectives:corporate strategy,inaccurate information disclosure,asset position and internal governance;financial position is analysed from debt servicing,profitability,operating capacity and cash flow.The paper then analyses Zheng Rong Real Estate’s financial warning through a modified Z-score model and finds that it is at high risk of longterm default.To further verify this,the paper also uses the modified KMV model to measure the default distance of the company from 2018 to 2022 and analyses the changes in its credit risk.The results of the Modified KMV model are compared with the Z-score model,and the results show that the Modified KMV model can provide better warning of bond default risk,which is a useful reference for similar case studies.Finally,some feasible suggestions are made to bond issuers and investors based on the causes of default,with a view to providing some reference for other real estate enterprises to avoid the risk of bond default and investors to reduce their investment risk.