Pledged Stock Loan Defaults Hitting Securities Firms

Sina: 股权质押违约频发 债券违约波及券商
Equity pledge defaults frequently

  The equity pledge project looks lucrative, but with frequent defaults, it has become a hot potato that has dragged down the performance of some brokers.

  CITIC Securities had 22 lawsuits in the first half of the year and 5 cases of stock pledged repo transactions. The largest breach of contract dispute was a pledge-type share repurchase transaction with Jinxin Industrial. In December 2016, Jinxin Industrialpledged its tradable sharesof Nanjing Xinbai(11.160, 0.41, 3.81%) to CITIC Securities. After the transaction defaulted, the principal amount was 395 million yuan.

  A brokerage non-bank analyst believes that the recent stage of equity pledge disputes is mainly related to three factors: First, the stock price volatility, brokerages began to force equity pledge business in 2015, some stocks fell by a large margin at the time, facing the liquidation Second, the risk of credit default, the liquidity of listed companies has problems, resulting in the inability to repay; third is the new rules of equity pledge last year and the new rules of capital management this year, the difficulty of corporate financing under strict supervision.

  Bond defaults affect brokers

  In the context of deleveraging, many companies have broken down due to poor management and broken capital chains, and their underwriting brokers are also not immune.

  As the lead underwriter, Huachuang Securities has undertaken the 2013 SME Private Equity Bond Project of Xiamen Shengdawei Garments Co., Ltd. (hereinafter referred to as “Santawei”). Due to the failure of Shengdawei to repay the debts on time, the bond investor Huaxia Fund requested the company to assume liability for the breach of the Santa Fe, and the total amount of the lawsuit was 3,584,410 yuan. In addition, in April 2018, the Guolianan Fund filed a lawsuit against Shengdawei and Huachuang Securities on the grounds of securities misrepresentation liability disputes, requiring Huachuang Securities to assume joint and several liability.

  CITIC Securities holds three bonds issued by Zhongcheng Construction, namely “11 Midtown Construction MTN1”, “12 Midtown Construction MTN1” and “12 Midtown Construction MTN2”. After the expiration, Zhongcheng Construction failed to repay the accumulated amount of 420 million yuan.

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