The research project titled “Study on Default Recovery and Disposal in Chinese Bond Market” submitted by Dagong Credit Rating Co. Ltd, was chosen on July 20, 2017 into the project repository under the maintenance by the Securities Association of China, after going through a comprehensive procedure composed of the evaluations of report normativity, project quality, researchers’ capabilities, research outlines, expected achievements, as well as strengths of support from their respective organizations.
Since 2014, China has witnessed the rapid growth both in number and amount the defaults in its bond market, which has precipitated the exposure of credit risks. From 2016 subtle change has been adjusted, in reflection of the supervising authority’s attitude towards risk tolerance, by shifting the past expression of “defending the bottom line of no outbreak of systematic and regional risks” to the present “defending the bottom line of no outbreak of systematic risk”. Amidst the New Normal economic environment and supply-side reform, as characterized by removal of overcapacity and financial deleverage, the pace of risk release may accelerate, highlighting the importance of risk identification and prevention. For investors, they care more about how the default bonds would be recovered and disposed.
In Chinese bond market, the prevailed belief hitherto of guaranteed payback for investors, an implicit principle wherein issuers, investors and supervisors were striving in an immature market lacking bond issuing regulations and protective design for investors, has just stopped short. Under the new circumstance, studying the recovery of defaulted bonds, and setting post-default managing mechanism, are critical to protect the interests of investors, to promote development of bond market, and to play the fundraising roles of bond issuances in real economy.
While prevailing domestic researches have preponderantly focused on why defaults happened in the bond market, including anatomical analyses on individuality of a single firm or commonalities of enterprises within an industry, less attention however, was paid to studies pertaining to default bond recovery and disposal. Dagong has kept constant researches related to credit risk and bond default. By organizing special teams targeting on domains related to municipal investment and commercial industries, Dagong has accumulated numerous research achievements in the form of enterprise credit risk database encompassing credit events analyses, case studies of defaulted enterprises, and defaulted bonds analyses etc.. As a member of the Editorial Committee, the research team from Dagong has actively participated in the compilation of Annual Report on the Credit Rating Industry of China’s Inter-bank Bond Market as organized by the National Association of Financial Market Institutional Investors (NAFMII), in which an annual report related to bond market defaults, independently accomplished by Dagong, is included.
Taking the opportunity that its research topic has been selected in the key projects list, Dagong may further extend its research in the areas of default bond recovery and disposal, fostering the healthy cultivation of the country’s bond market.
— By Ouyang Yongbing, Dagong Credit Rating Co., Ltd