Case Study On Perpetual Bond Financing Of Evergrande Group

As a highly-leveraged industry,real estate industry has the characteristics of large investment and long payback period.Driven by these characteristics,real estate enterprises need a continuous flow of fund.In this case,they have urgent need for the diversity and efficiency of financing.Since 2010,with the improving of Chinese macroeconomic situation,the real estate market has gradually recovered.Driven by the high profit margin and the expanding demand,real estate enterprises were spring up,and large enterprises began making effort to seize the market.Along with the prosperity of the real estate market,Chinese government began to promote the macro-control policies to curb the rapid rise of housing prices.The implementation of limited purchase and limited loan has caused a huge impact on the real estate industry.So it is urgent to seek new financing methods.As one of the financing tools,the perpetual bond has a history of more than 300 years in western countries,but in China,it got its initial development until 2012.With the promoting of financial instrument’s innovation in China,many large enterprises and financial institutions have shown great enthusiasm for perpetual bond.In this paper,Evergrande Real Estate Group Co.,Ltd.was selected as the subject of the case,which generated greater demand of capital during the strategic transformation and the change of market layout.Evergrande Group issued 25.02 billion yuan of perpetual bond in Hong Kong for the first time in 2013.And it continued to issue perpetual bond for the next 4 years.Until June 2017,Evergrand Group has repaid the 112.944 billion yuan of perpetual bond.In the period of financing with perpetual bond,Evergrand Group completed the strategic transformation of real estate layout and diversified development of business operation.Then it became the world’s first real estate enterprise.The main reason for the rapid development is that Evergrand Group has made reasonable financing decisions and designed scientific perpetual bond’ financing scheme by combining its development strategy with the development status of real estate market and financial market.In this paper,Evergrand Group’s perpetual bond financing is discussed in the form of case analysis.So that we can provide financing experience for other enterprises.First of all,this paper starts with the research background and significance.It elaborates the reasons for the topic selection,and summarizes the relevant research results at home and abroad to provide guidance for this paper.After that,this paper summarizes the relevant basic theories of perpetual bond financing,which is elaborated from the concept characteristics,decision-making content and other relevant theories.Then this paper expounds the background of Evergrand Group’s perpetual bond financing.In this part,Evergrand Group is introduced from basic profile,business status and financial status.And it also briefly elaborates the scale,process,scheme design and relevant term of Evergrand Group’s perpetual bond financing.The following part is the case analysis,which discusses the decision of Evergrand Group’s perpetual bond financing specifically.This part includes scale decision,method selection,opportunity election and specific terms.Specifically,this chapter analyzes financing scale decision from the view of sustainable growth situation and market status of Evergrand Group,analyzes financing method selection by comparing perpetual bond financing with equity financing and debt financing,analyzes financing opportunity election from the view of group’s layout changes and capital market winds,and analyzes perpetual bond’s issuing clauses.The following is the summary and inspiration of this case,so that we can provide guidance of financing decisions and scheme design of perpetual bond financing for other real estate enterprises.By analyzing Evergrand Group’s perpetual bond financing,this paper provides experience reference for real estate enterprises’ financing decisions and clauses’ setting of perpetual debt financing.In the financing decision-making process,Evergrand Group determines the financing scale based on its own financial situation and considering the long-term and short-term development strategy.According to the capital demand,the optimal financing method is determined by comparing the financing cost and financial risk of different financing method.According to the right combination of financing methods,Evergrand Group chose the appropriate issuance time on the basis of analysis of group’s own situation,industry conditions and the market performance of the selected financing instruments.After that,Evergrand Group comprehensively considered the financing effect brought by various terms and weigh the investment demand of investors,so that Evergrand Group could set appropriate terms that can not only guarantee the successful completion of financing project but also minimize the financing cost.Evergrande Group always takes its future development strategy into consideration in the process of financing decision,and integrates its own risk preference to choose financing method.During the 5 years of rapid development of the real estate market,Evergrand Group successfully completed its strategic expansion and market layout through aggressive large-scale financing of perpetual bond,which provides guidance for other real estate enterprises in financing decisions.