Research On China Railway Perpetual Bond Financing

As one of the main pillar industries in China,the construction industry has provided a very large growth space for construction enterprises.However,in the area of infrastructure in China,the owners often lack funds.so that more and more owners adopt various construction management methods such as EPC + F(F for financing),BT,BOT,and PPP.Therefore,Owners value the ability of the construction company on survey,design,and comprehensive construction management capabilities,and the most important financing capabilities increasingly.Competition in this market for the construction industry,especially for large infrastructure projects,is slowly becoming a competition between the main participants in China’s huge construction market and the central construction companies ’combined capabilities of management,operation,and financing.As the number of investment and financing projects has gradually increased,in addition to the construction companies have high requirements for the independent handling of large-scale projects,the requirements for the capital and comprehensive financial services capabilities of the company have also become higher and higher.Because the profit margin of construction projects is generally low,endogenous financing can hardly meet the needs of business development.In order to maintain the original business and the operation of new investment projects,exogenous financing has become the main source of funding.So the financing problem is the most important issue for the development of construction enterprises.But the situation is that many state-owned enterprises have high asset-liability ratios.If they choose debt financing,they will increase their asset-liability ratios,make them capable of paying,and eventually lower their corporate credit ratings.If we choose to invest in targeted additional stocks,but in reality,our country will often underestimate the price of stocks,and at the same time,it will dilute the returns of shareholders and damage the interests of former shareholders.Most shareholders will not approve of the financing plan.For the above reasons,some companies have begun to try the new type of sandwich financing method of perpetual debt.Perpetual debt was first issued in China’s mainland in 2013.It is a relatively new funding tool,but in fact it has been developed for more than 200 years.Perpetual debt refers to bonds that do not have a fixed maturity date or a very long period of time in the terms of perpetual debt.Perpetual debt is a layered financing tool.Legally,perpetual debt is called a debt,but perpetual debt does not determine the fixed redemption time.Theoretically,it can be used by the issuer indefinitely.So most of the time it is counted in "Equity instruments."This paper first introduces the background,significance,development history,concept and distribution status of perpetual debt,and then introduces the present situation,financing methods and problems in the financing process of the construction industry in China.After that,the author makes a comprehensive description of the issuance process and terms design of the China National railway company’s issue of perpetual debt,and analyzes the consequences of accounting and tax treatment of perpetual debt in the light of the relevant laws and regulations.Then,according to the development strategy of China Railway and the financial situation in recent years,the author analyzes the reasons for the issuance of perpetual debt,including easing financing demand,reducing the asset liability ratio,and stabilizing the credit rating.Then the author analyzes the risks that may be caused by the issuance of perpetual debt.Including interest rate rise risk,liquidity risk,operating risk and credit risk.Finally,the paper analyzes the effects of China Railway’s issuance of perpetual debt.Through the case analysis,the author summarizes the advantages of issuing perpetual debt of construction enterprises and the problems to be solved in practice,and puts forward corresponding countermeasures and suggestions,which will provide some references for future exploration.