| For a long time,due to the long development cycle of real estate projects and the huge demand for funds,Real estate companies mainly rely on bank credit to solve financing problems.As credit policy goes tight and the real estate companies need to broaden their financing channels,the emergence of some other financing methods such as perpetual bond have brought interests and become a new and popular financing way among the real estate companies.Since the first perpetual bond "13 Wuhan Metro Renewable Debt"(Please be noted that the perpetual bond in China is usually not called”perpetual bond”,but described as “renewable debt”or medium-term note with long-term right)was issued in 2013,the types of perpetual bond creditor’s rights have been constantly enriched.On the one hand,the characteristics of both debt and share and alternative on relevant account policy of perpetual bond make it welcomed by the capital-intensive industry;On the contrary,it also arouses the doubts of social public opinion.As a new thing in the financing field,what drives the companies to issue perpetual bond? What effect will it have after issuance? What are the potential risks? How to avoid these risks? These are the questions that this paper tries to discuss.Firstly,this paper summarizes the general situation of perpetual bond issuance in China.Then,Taking China Fortune Land Development Company as an example with perspectives from perpetual bond’s characteristics,financial effects and market effects,this paper analyses the motivation of issuing sustainable debt financing,the effects after issuance and the impacts of sustainable debt financing on stakeholders.To make a further discussion,this paper looks for the potential risks of perpetual bond from eyes of stakeholders.And lastly,some suggestions are put forward for the above potential risks.Specifically,there are three motivations to be considered: to perfect the capital structure,which is conducive to credit rating and refinancing;to improve the liquidity of assets to meet the long-term financing needs;to make company profitable by reducing the financing cost thus help the development of the actual company controller’s enterprisrs.The effects of issuing perpectual bond is dealt with from following aspects.Firstly,it arouses market reaction.The event study method helps to show that after learning the fact that companies were financing by perpetual bonds,market tended to be down with short-term negative market effect.Secondly,it brings financial effect.In essence,perpetual bonds failed to improve the liquidity of the company’s assets remarkably despite of its beautiful appearance of financial statements.Besides,it also had attracted the eyes of the regulatory authorities.The incident that China Fortune Land Development Company’s being questioned by the regulatory authorities was disclosed and caused a lasting influence.With emotional panic in the air,the market reacted immediately and negative effects were gradually amplified which forced China Fortune Land Development Company had to make strategic adjustments.This paper analyses the potential risks of perpetual bond and puts forward some suggestions: The China Fortune Land Development Company should pay attention to the timing,the choice of the type of perpetual bond,as well as the disclosure of relevant information.And the supervision department should enact relevant legislative techniques and refine accounting policies for perpetual bond,and closely monitor the issuer companies and financing trends of sustainable debt before,during and after the issuance.The main innovation of this paper is the analysis of the effects and risks of perpetual bond financing based on the perspective of stakeholders.In addition to the traditional financial effects,the paper also analyzed non-financial effects.In the end,the paper delivered proper advice.Some points of this paper still need to be modified and improved due to the author’s ability: one single case cannot represent the whole picture of the issue.Besides,considering the short history of perpetual bond in mainland China,this paper also cannot evaluate the long-term effects and potential risks with limited materials. |
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