Study On The Motivation And Effect Of Perpetual Bonds Financing Of China Evergrande Group

With no maturity date,the perpetual debts are similar to the real capital.Therefore,perpetual bonds are mixed financial instruments which have the dual attributes of “equity” and “debt”.In accounting,perpetual bonds can be credited to equity under certain issuing terms.However,from the current situation of issuing perpetual debt,the vast majority of the perpetual debts didn't last for a long time.This article takes “China Evergrande Group” as the example,which issued a lot of perpetual debts from 2013,and be redeemed in full in 2017.This paper mainly focuses on the motivation of Evergrande perpetual bonds financing and the financial effect to the enterprise to try to provide reference to other issuing companies.First of all,we have a comprehensive understanding of enterprise characteristics based on the background description of Evergrande,and the background of why Evergrande chose perpetual debts financing.Then,this article analyzes the terms of perpetual debt of Evergrande and confirms that it conformed to the conditions of equity in accounting.The main contents of this paper are completed under the above prior condition.Firstly,it confirms from one side that suitable companies are those which have a large amount of financing demand,higher debt rate and financing dilemma by studying the motivation of Evergrande perpetual bonds financing from two different angles,issuing and redemption.Secondly,the research of the company ratings changes found that though the terms of Evergrande perpetual debt are in conformity with the conditions of equity in accounting,its property is more close to debt.The major investors and rating agencies tend to treat all Evergrande perpetual debt as liabilities.The final content of the study is the influence of perpetual bonds financing on the financial effect of China Evergrande Group in terms of Evergrande's own the financial data and the data compared with the peer enterprises'.When analyzing the three financial statements,we find that perpetual debt adjusted the assets structure and inflated net profit,which has the effect of beautifying the financial statements.When contrast Evergrande with peer company,we find that perpetual bonds reduced costs of Evergrande financing,boosted the volume of financing,and gain the leading position in the industry depending on its scale and stable gross profit rates.The rapid scale expansion caused a decline in asset turnover,high cash holdings to resist risk and other problems.While the final result proves to be quite successful that Evergrande complete the scale transition and the layout in the first-tier and second-tier cities by using perpetual bonds.Finally,sum up the advantages and possible risks of perpetual debt,this article attempts to give some advice to some perpetual bonds issuing enterprises in the future.