The Motivation And Economic Consequences Of The Renewal Of The Perpetual Debt Of Hubei Yihua

With the rapid development of Chinese economy and the strong financing demand of enterprises,more and more companies are adopting a new type of financing tool-perpetual bonds.Perpetual bonds refer to bonds that are theoretically perpetual and perpetual.perpetual bonds include two situations: one refers to bonds with no fixed maturity,that is,perpetual bonds in the traditional sense;the other refers to bonds with a fixed term but with independent renewal options,namely Renewable corporate bonds.However,my country’s capital market refers to the above two types of bonds collectively as perpetual bonds.The perpetual bonds we are studying here are bonds with renewal options.Investors can only receive bond interest on a regular basis,but the repayment of the principal is at the discretion of the issuer.Decide.Perpetual bond renewal refers to the situation where the company does not redeem the bond on the exercise date,but only pays the interest accrued on the maturity date,and extends the principal to the next line of entitlement date.Perpetual bonds have the dual attributes of debt financing and equity financing,and the financing costs are usually between the two.At the same time,they supplement liquidity,improve the company’s capital structure,and will not decentralize the company’s control.Domestic companies began to issue perpetual bonds in 2013.Starting in 2018,the perpetual bonds that have been issued have successively faced the question of whether they will be renewed.Whether the issuer of the perpetual bond chooses to renew the perpetual bond should be made prudent on the basis of comprehensive consideration of the company’s financial situation,comparison of the cost and operability of other refinancing methods,and full consideration of the economic consequences of the renewal.as a result of.This article takes Hubei Yihua renewed perpetual bond "16Yihua Chemical MTN001" as a case to study the issue of perpetual bond renewal.First,it explains the theoretical basis and relevant laws and regulations of perpetual bonds,and then analyzes the motivation and economic consequences of "16 Yihua Chemical MTN001" when it expires in 2019.The analysis of motivation is mainly carried out from the two perspectives of the company’s financial status and refinancing,and the analysis of economic consequences is mainly carried out from the four aspects of cost and income,financial performance,market response and risk analysis.Finally,the case is analyzed and summarized,and relevant countermeasures and suggestions are put forward.The research conclusions of this article are as follows: In terms of the renewal motivations,Hubei Yihua business has deteriorated,its finances are in trouble,profitability has declined,debt repayment ability is weak,and the possibility of implementing other methods of refinancing is low.Therefore,it has chosen to renew the renewable corporate bonds.Expect.Regarding the economic consequences of renewal,on the one hand,perpetual bonds are still included in equity assets after renewal,which can beautify the company’s financial statements,optimize the debt structure,control the level of leverage,and can also avoid the current outflow of cash flow.The company reversed the passive situation of operation and created more opportunities.On the other hand,the renewal of perpetual bonds triggers the interest rate jump mechanism,which increases the company’s financing costs and increases the pressure on the repayment of future cash flows.The market response to perpetual bond renewal shows that investors have a negative attitude towards perpetual bond renewal events and are not optimistic about the company’s expectations.Moreover,there are still a series of potential risks after the renewal of perpetual bonds.