Brilliance Group was filed for investigation, business operations must put credit first
Enterprise Observation
The basis for the survival of the bond market is credit.
Once credit is lost, the bond market cannot survive.
Whether it is Brilliance or other companies, credit must be the first priority.
On November 20, the China Securities Regulatory Commission issued an announcement to take administrative supervision measures against Brilliance Group by issuing a warning letter, and decided to file a case for suspected violations of information disclosure, conduct simultaneous inspections of intermediaries involved in Brilliance Group’s bonds, and seriously investigate and deal with them. Violations of laws and regulations.
Obviously, this is a message that can send a positive signal to the market. It is also a signal that needs to be vigilant for bond issuers, and it is a signal that strengthens supervision and is not lax.
It should be known that bonds, as one of the important means of corporate financing, play a very important role in alleviating the financing contradictions of the real economy, accelerating the multi-level development of the capital market, and increasing the proportion of direct financing, and it has also effectively promoted the development of enterprises.
It is precisely because bonds have a great effect on corporate financing that companies are becoming more enthusiastic about issuing bonds, and the scale is also expanding.
According to data provided by relevant agencies, in 2019, the accumulated financing of the exchange bond market has reached 7.2 trillion yuan, which is 17 times that of 2014.
In the first nine months of this year, the accumulated financing amount in the exchange bond market was 6.39 trillion yuan, which continued to maintain rapid growth.
The problems behind Brilliance’s default are far more complicated than a single default.
On the one hand, the business model of Brilliance is controversial, and the entire group depends on a subsidiary of BMW Brilliance.
According to the financial report of Brilliance China, in the first half of 2020, Brilliance China's revenue was only 1.45 billion yuan, but its net profit was as high as 4.045 billion yuan. This is because BMW Brilliance contributed a net profit of 4.383 billion yuan, and Brilliance China actually lost 340 million yuan.
Judging from the situation in 2019, Brilliance China's profit reached 6.762 billion yuan, of which BMW Brilliance contributed 7.626 billion yuan, and Brilliance China still had an actual loss of 864 million yuan.
On the other hand, although Brilliance Group did not default on bonds in the past few years, it was continuously borrowing new debts to repay old debts, and the majority of the bonds were not due for repayment.
As relevant institutions control Brilliance’s bond issuance, investors’ trust in Brilliance’s bonds is getting lower and lower, and Brilliance has repaid old debts with new debts amid increasing negative news. It was also broken, and bond defaults became inevitable.
And this breach may just be the beginning.
Brilliance's application for bankruptcy and reorganization has been approved by the court.
The so-called bankruptcy reorganization, in the final analysis, is to make creditors pay more, including bond investors, and their interests will suffer.
Therefore, the China Securities Regulatory Commission launched a case investigation against Brilliance, and the relevant intermediary agencies were also filed and investigated. To a certain extent, it is also seeking justice for investors.
Since this investigation is an individual case, it does not mean that other companies will breach contracts and be investigated.
However, the signal sent is positive, for the entire bond market.
The fact is that the basis for the survival of the bond market is credit.
Once credit is lost, the bond market cannot survive.
Whether it is Brilliance or other companies, credit must be the first priority.
Without fear of credit, the negative impact will affect the entire market.
Especially when there are doubts about whether Brilliance's subsequent bond redemption can maintain credit, it may also affect investors' trust in other corporate bonds.
Therefore, an investigation into Brilliance must be conducted to enhance investors' confidence in the bond market.
The investigation of intermediary agencies is also intended to make the intermediary agencies more responsible for the issuance of corporate bonds, instead of making the successful bond issuance the only goal of the intermediary agencies.
Of course, Brilliance’s ability to obtain bond issuances of this magnitude is obviously not just the "credit" of enterprises and intermediaries. Approval agencies, issuing agencies, and Brilliance’s state-owned regulatory agencies also have more or less "credit."
Therefore, the scope of the investigation should be broader, allowing more institutions to bear their due responsibilities.
□Tan Haojun (financial commentator)