Research on Bond Issuers’ Default Risk

DOI

10.2991/assehr.k.210407.117How to use a DOI?

Keywords

Bond Default, Default Risks, Evading debts, Rating Failure

Abstract

After analysing the RMB 3 billion credit bond default events of Yongcheng Coal and Electricity Group (Yongmei in the following paper) which is a local state-owned enterprise with AAA credit rating from its rating agency before the default event, some problems have been found. From Yongmei’s consolidated financial statements and the parent company’s financial statements, it can be found that both statements have a large proportion of short-term debts and their debts from banks are replacing with bond debts. In contrast to the consolidated balance, the parent company has only RMB 2.7 billion in cash and cash equivalents. As the parent is the subject of debt and repayment, it has insufficient solvency, especially in the short term. Besides, from the rating agency’s rating reports and announcement, the rating model uses EBIT and EBITDA as profit indicators and all data from consolidated statements, which are mismatched with the subject of bonds. Hence, it left loopholes to the parent company to upgrade its rating, to ‘transfuse blood’ to its loss-making subsidiaries, or to evade debts. Ultimately, according to these findings, suggestions are provided to debt issuers, regulators, institutional investors and rating agencies.

Copyright

© 2021, the Authors. Published by Atlantis Press.

Open Access

This is an open access article distributed under the CC BY-NC license (http://creativecommons.org/licenses/by-nc/4.0/).

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TY  - CONF
AU  - Ke Bi
PY  - 2021
DA  - 2021/04/08
TI  - Research on Bond Issuers’ Default Risk
BT  - Proceedings of the 2021 6th International Conference on Social Sciences and Economic Development (ICSSED 2021)
PB  - Atlantis Press
SP  - 601
EP  - 611
SN  - 2352-5398
UR  - https://doi.org/10.2991/assehr.k.210407.117
DO  - 10.2991/assehr.k.210407.117
ID  - Bi2021
ER  -