Analysis On The Causes And Effects Of Cross Default Of Real Estate Corporate Bonds

Since the reform and opening up,China’s technology and economy have made rapid progress.With the constant reform of the capital market,China’s bond market is making great strides forward.In recent years,using bond financing has gradually become one of the important means of external financing for listed companies.After decades of efforts,China’s bond market has undergone rapid changes,but also exposed many problems.In 2014,Chaori Solar Engineering Co.,Ltd announced that "11 Chaori Bonds" could not pay the principal and interest on schedule,confirming the breach of contract.Since then,the default "rigid cashing" principle in the early development of the bond market has been completely broken,and bond default has begun to occur frequently.By 2020,more and more state-owned enterprises have broken out of bond defaults,completely triggering the public’s panic about the development of the bond market.The increasingly severe credit environment makes the public pay more attention to the establishment of protective measures to avoid the infringement of their own interests as much as possible.In 2016,China’s short-term financing bonds "16 Sichuan Honghua CP001" added cross-protection clauses to the contract for the first time to further protect the interests of investors.Since then,cross protection clauses have officially entered into China’s bond market and been widely used.However,the use of cross-protection clauses did not play the expected protective role.Conversely,it is easy to make enterprises to trigger a series of chain effects and accelerate the arrival of enterprise financial crisis because of triggering cross-protection clauses.Therefore,it is urgent to deeply analyze the causes and effects of cross-default of listed companies’ bonds to better prevent relevant credit risks.According to the situation of the bond market in recent years,this thesis selects Sichuan Languang Development Co.,Ltd.as the case study object,analyzes the cross-default events of corporate bonds from multiple perspectives,studies the causes and subsequent effects of the cross-default of its bonds,and puts forward further prevention suggestions based on the research results.Firstly,it briefly introduces the background of cross breach,and combs the research of domestic and foreign scholars from three aspects: the basic terms of cross breach,the causes of breach and the impact of breach.On this basis,it further introduces the main concepts and theoretical basis involved in this study,laying a foundation for the later study.Secondly,the specific situation of the case studied in this thesis is described in detail from four aspects: the background of the case selection,the basic situation of the case company,the issuance of bonds by the case company and the development process of the whole default event.Thirdly,from the external environment and internal management,the specific causes of cross-default of Languang Development Bonds are analyzed in depth.In terms of external environment,the analytical focus of this thesis is mainly on three aspects: the national macroeconomic downturn,the impact of the epidemic background on the overall economic situation and the characteristics of the real estate industry.In terms of internal operation,the main reason is that the company’s blind expansion strategy causes its cash flow to remain tight.At the same time,under the circumstance that it is difficult to effectively reduce the operating costs,enterprises can not effectively prevent the risks brought by cross-protection clauses,resulting in increased liquidity risk of enterprises.From the second,this thesis further analyzes the impact of the cross-default event on the case object and related parties from the issuer,investors and intermediaries.Finally,according to the previous research results,draw the conclusion of this case study and put forward relevant preventive suggestions.Through in-depth research and analysis,this thesis draws the following conclusions:Firstly,the direct reason for the occurrence of bond cross-default events in Languang Development is mainly the continuous lack of corporate capital liquidity.Secondly,the blind expansion strategy is the fundamental reason for the bond default of enterprises.Thirdly,cross-default further aggravates the risk of enterprise capital chain fracture,making enterprises face severe credit crisis.Based on the above conclusions,this thesis further puts forward the following preventive suggestions: Firstly,the development of real estate enterprises depends on industrial policies,and should always pay attention to policy trends and market changes in the operation.Secondly,the real estate industry is characterized by long cycle and slow turnover,which causes enterprises to face high liquidity risk.Therefore,in the development process,it is necessary to strictly evaluate the cash flow of enterprises,formulate reasonable expansion strategies,and avoid blind expansion.Thirdly,the setting of cross-protection clauses can attract investors to a certain extent,but may also cause serious chain reactions.Therefore,enterprises should reasonably choose financing methods and carefully use cross-protection clauses.Fourthly,the frequent occurrence of default events in the bond market also reflects the current lack of supervision to some extent.The supervision and management department needs to strengthen the supervision of the bond market and improve the credit rating mechanism,so as to timely discover the credit risk behind the bonds,protect the interests of investors and maintain market stability.