Investigation Of Difficulties In Resolving Default Risks Of Public Debt: Why Is The Phenomenon Of Nail Households Becoming A Key Stumbling Block?

The derivative phenomenon of debt overdue events is becoming more complex.

As of October 31st, Wind data showed that since 2019, 141 credit default has occurred, exceeding the level of the whole year, and the total breach of the contract amounted to 108 billion 803 million yuan.

Some bond issuers' payment problems are still far from being clearly presented on this data.

In twenty-first Century, the business reporter reported that in the event of overdue payment such as "16 Yihua 01" and "16 days wide 01", the issuer continued to communicate with the bondholders to persuade them to grant a grace period or give up the right to sell back, so as to avoid a narrow sense of "default recognition", resulting in further aggravation of their liquidity dilemma.

At the same time, there are also some individual holders who insist on choosing to sell back and refuse to provide grace period for issuers. These adherence, to a certain extent, induce the substantial breach of the issuer and bring greater difficulty to their subsequent rescue and reorganization.

Those who refuse to extend the issue to the issuer are often referred to as "nail households" in the event of overdue disposal of bonds. According to the investigation by reporters, the reasons for the phenomenon of "nail households" are more complex and diverse, such as the mistrust of the holders, the fluke psychology of the junk bond investment, the inefficient authorization process of the institutional holders, and the high leverage operation of the products, etc., all of which are the reasons why the holders are unwilling to provide the grace to the issuers.

Phenomenon of nail households

In October 28th, Tianguang Zhong Mao (002509.SZ) issued "16 days and 01" appeared to be overdue.

In twenty-first Century, the economic news reporter learned that this was not related to the fact that different bondholders failed to reach an agreement on whether or not to withdraw the sale and provide a substantial credit grace period for Tianguang Zhong Mao.

According to the disclosure of Tianguang Zhong Mao, 74% of the bondholders who had chosen to sell back had withdrawn their applications. However, the reporter understands that if the withdrawal ratio is above 90%, the "16 days wide 01" is expected to avoid the issuer from triggering a substantial breach through the off site settlement, thereby creating conditions for its later restructuring and rescue.

However, some institutions and small and medium investors still refuse to withdraw their sales and are regarded as "nail households" in the incident.

In fact, the phenomenon of nail households has been widespread in the current debt overdue events, and the reasons are different.

For example, some "nail households" holders refuse to withdraw their repurchases to provide renewal for issuers, partly because some small and medium-sized bond investors harbor a fluke mentality that they hope to enjoy "differentiated treatment".

"Some investors may not be able to hold a large amount of bonds, and think that a large issuer may not be able to make such a difference, so they insist that they do not sell it in order to secure the bag." A large broker dealer in Beijing said, "but many times, issuers do not have enough money to pay interest at a certain point in time. They can only pay interest and not pay the principal."

"Of course, there are some small and medium-sized holders who do not have high trust in issuers. They are doing speculation in junk bonds and are worried about issuers from escaping from debt, so they insist on selling back." A professional who participated in the investment in junk bonds said.

It is worth mentioning that there are also some holders who have become passive households because of their small scale. Reporters learned that, in the "16 days and 01" of the overdue sale, some of the small holders who had applied for sale were unable to get any contact and communication with issuers or bond managers.

Inefficient institutions

There are also many institutional investors playing the role of "nail households" in the disagreement of some bond defaults. The real reason is more complicated.

For example, according to a survey by the economic news reporters in twenty-first Century, there were two fund products holders who insisted on selling back in the process of overdue payment of a private debt that was finally realized.

"At that time, the issuer did encounter liquidity difficulties and hoped to extend the period. But the two holders of debt products insisted on selling back and refused to extend the time, because the decision to invest in the debt was not what they did, and there was no need to add to this matter, because if they gave up the subsequent breach, they would have to bear more responsibility; if they insisted on selling back, breaking the contract would be a problem for their predecessors." A person close to the above issue of the public debt issuer revealed.

"Product users change fund managers and other behaviors, leading to a confrontation of their investment behavior before and after power and responsibility, which leads to the voting of private debt default." The person familiar with the matter said frankly.

At the same time, some institutional holders are unable to make quick decisions such as withdrawing back sales and credit extension due to internal wind control requirements and other reasons.

"For many institutions, the total issuance of credit bonds is not large, and institutions have fewer holdings, so they often have their own risk control processes." A joint-stock bank official said, "this is just like some banks know that the loan companies will die and still lend money. Because the organization machinery has a fixed risk control mechanism, the cost of one case discussion system is too high."

"Such a short time window is difficult for some institutional holders, especially state-owned institutions, to form a decision to withdraw the application for resale." A bond private equity agency official said, "because the whole process cycle is very long, and no one is willing to take responsibility, there will be a tragedy of the Commons finally."

In addition, there are individual private product households with higher leverage. Once they give up the sale, they will face a dilemma, so there is no room for more opportunities for issuers.

"Some products themselves have added leverage to credit debt. After the industry was stratified in June this year, it is hard for them to borrow money from products and credit bonds. Many products are not comfortable with their lives. If the money that a product is due to repay as a result of a planned balance of debts later, then there is absolutely no reason for him to allow the issuer to extend the time. Respondents pointed out.