Severe punishment of debt evasion is not a return to these challenges after the crisis of converting to Yongmei

 Severe punishment of debt evasion is not a return to these challenges after the crisis of converting to Yongmei

Entering the fourth quarter, the bond circle pays more attention to the follow-up market development. In particular, the fourth quarter of each year is the peak period of financial and urban investment expenditure. At the end of the year, the funds are tight, and many urban investment investment companies have to borrow the new to repay the old at the end of the year. The issuance of the primary market has been affected recently, and the aftermath of the Yongcheng Coal incident will last for a relatively long time. A person from the investment banking department of a securities firm told the first finance and economics reporter that after the announcement of the association of dealers, the institutions were more sensitive to structured issuance. In the week after Yongmei defaulted, more than 20 billion yuan of domestic bond issuance plan was cancelled.

How to deal with the permanent coal incident?

The default of Yongcheng Coal triggered cross default of the parent company Henan energy and chemical industry group (hereinafter referred to as Yuneng chemical) and the bond default of about 50 billion yuan of the two companies made the market worried that the government might be willing to allow large state-owned enterprises to default. Henan energy chemical is one of the largest state-owned enterprises in Henan Province, engaged in coal and chemical industry.

Debt evasion and default are not the same. The default of state-owned enterprises has occurred for a long time, and severe punishment of evasion and abandonment of debts does not mean that the emphasis is placed on repaying and withdrawing debts. Li Chang told reporters that the credit status of Yongmei and its parent company was weak. According to the data, the ratio of debt interest tax to profit before depreciation and amortization at the end of 2019 is more than 9 times. It is not entirely unexpected that the two companies encounter credit pressure and bond default.

At present, how to define the Yongmei incident is still controversial. On the one hand, there are market views that it is a malicious evasion of debt, which requires high-level coordination; on the other hand, credit bonds are risky, and investors should be responsible for their investment behavior. Founder Securities chief economist color told reporters, the Yongmei incident itself is not a complete market behavior, so investors bear not all market risks, and the follow-up may need some coordination and proper handling by the central level.

Although default in the bond market has normalized, S & P does not believe that there is a systemic risk. For state-owned enterprises, the governments willingness to support is still strong, but with the marketization of some business in the process of state-owned enterprise reform, the trend of credit differentiation may be further revealed.

Institutions strengthen bond screening and risk control

For the state-owned enterprises with a higher degree of marketization, the weaker the individual credit status, the lower the probability of obtaining timely support under the pressure scenario, so the financing status of state-owned enterprises will continue to differentiate. Li Chang said.

In the future, investors will pay more attention to the influence of the credit status of the parent company (if any) on the credit quality of the evaluated subject in addition to paying attention to the subjects own situation. The Yongmei incident shows that the mother is strong and the son is weak constitutes a major risk. Specifically, if the parent companys credit quality is better, the subsidiarys credit quality may be improved, otherwise, the parent company may drag down the subsidiarys credit quality.

However, the situation of strong son and weak mother also exists, especially in listed companies. Most of the listed companies in Chinas financial and economic system will be listed in the most stringent requirements. Within the group, listed companies usually have the strongest profitability, the best asset quality and the lowest debt burden. For the above types of listed companies, if the parent companys debt burden is heavy, or the business situation is seriously worse than the subsidiary company, it will have a negative impact on the credit status of the listed company.

According to standard & Poors credit rating, if the listed company is completely independent of the parent company, and the parent company cannot exert significant influence on the operation or finance of the listed company, then the credit quality of the parent company has no impact on the subject to be evaluated.

The fourth quarter is the peak of urban investment demand

In addition, the Yongmei incident also led to an increase in the number of cases of cancellation of bond issuance and the rise of financing costs. The subsequent liquidity risk also attracted market attention, especially the urban investment and financing situation.

A bond trader told reporters that as of November 16, 2020, of the credit bonds issued by Henan Province, the cumulative stock of urban investment bonds had reached 344.332 billion yuan, ranking No.13 in China, involving 72 issuers, with a total of 25 bonds. This default may lead to an increase of issuance cost of one or two hundred basis points, and the interest payment cost of urban investment will increase.

For a province, state-owned enterprises are roughly divided into four levels: provincial level, provincial capital level, municipal level, district and county level. As far as the current situation is concerned, once the default cases occur in the province and are not properly handled, even the provincial enterprises or provincial capital enterprises will be affected to a certain extent. Investors believe that the underlying may have risks, which may eventually lead to difficulties in the issuance of lower level enterprises, or even the issuance failure. However, the issuance cost of higher level platforms will rise, leading to the rise of financial costs.