People looking for appreciation of their money through investments in corporate bonds are increasingly deciding to see at least something from their investment in the end. In the Czech Republic, there are more and more cases where a company issues bonds but subsequently goes bankrupt.
Last year, 22 issuers ended up in insolvency, so roughly every tenth issuer ends up in bankruptcy. This follows from a new analysis by the forensic agency Surveilligence.
“When a business is out of control, emissions are often the last straw for an underperforming company. Issuance of corporate bonds, especially sub-limit bonds, is a very risky investment,” commented Ján Lalka, head of Surveilligence. The issue of bonds up to 25 million crowns is referred to as sub-limit. Issuing bonds is easier in this category.
According to the expert, bonds are often the last option for the issuer to obtain funds for business development. Therefore, he is willing to promise high interest for them.
“However, this interest expense, together with the other costs of the issue, is such a high burden for the issuers that instead of serving for the development of their business, it will rather accelerate its demise,” added Lalka from Surveilligence.
In addition to the failed business, however, some bond issues have an even darker background from the start. “Due to the naivety, inexperience and often stupidity of some investors, some issues have become gold mines for sophisticated fraudsters. Those in this very weakly regulated environment of emissions and their sales have found many opportunities in recent years to fraudulently acquire hundreds of millions to billions from the pockets of inexperienced amateur investors,” said the economic crime specialist from Surveilligence.
The biggest bond bankruptcy of last year was the collapse of companies from the Helske group. They owe around 909 million crowns from the issued bonds alone. The company attracted investors to the production of innovative building materials and the construction of houses for the elderly.
The statistics of failed issuers for the past year were also echoed by the case of the bankrupt investment company Arca Investments and its connected companies. A total of six bankrupt issuers out of last year’s twenty-two are connected to this case. They originally belonged to the group of investor Pavol Krupa. Although he left the Arca Capital group in 2018, the financial ties between his new holding and Arca remained.
The case of companies from the former Fair Credit financial group also took care of two significant additions to the register of bankrupts.
In total, the failed issuers issued bonds worth several billion crowns. How much of that amount will make it back to creditors is uncertain and depends on several variables.
The Biggest Bond Crashes of 2022:
| Issuer | Volume of issued bonds (in millions of CZK | |
| Hellish Sustained HPC | 909 | |
| Concord Financial Holding | 300 | |
| Fair Credit International (now called Cepo Green3) | 300 | |
| OH Investments Holding (formerly Ondrášovka Holding) | 250 | |
| Incore Investment | 160 | |
| Source: Surveillance |
“From the current insolvency proceedings of bond issuers, it can be concluded that the speed of declaring bankruptcy is important for creditors. The fact that there was a police seizure of property and the existence of a guarantee statement from the owner of the issuer or persons in the authorities can also have an influence,” said lawyer Bystrík Bugan from the Bugan Legal office.
This year did not start calmly on the corporate bond market either. The editors of SZ Byznys have already reported on the case of companies from the Premiot Group. They are currently having problems paying the principal on some of their bonds. However, the company promises creditors that it will resolve the situation after completing business transactions.
