The Study On The Effect Of Perpetual Bond Financing Of Languang Development

With the adjustment of economic structure by supply-side reform,deleveraging has run through China's economic work all the time.As one of the pillar industries of economic growth in China,real estate is difficult to meet the development needs of enterprises with its own funds because of its large demand for funds to build buildings and long investment recovery period.Therefore,the real estate industry is operating with high liabilities all the year round,and its deleveraging work is imminent.In recent years,with the tightening of the regulation of real estate financing,the approval of bond issuance is more stringent,through which financing methods to meet the demand for funds while reducing financial leverage has become an urgent problem for real estate enterprises.Under certain conditions,perpetual bond can be included in the particularity of rights and interests,which makes it a“life-saving straw” for real estate enterprises to reduce leverage.Under the leadership of Evergrande Real Estate,real estate enterprises began to issue perpetual bond in order to quickly finance funds and modify the capital structure.Languang Development backdoor listing in 2015,listing assets of more than 100 billion in three years,becoming the leading real estate enterprise in Sichuan.Behind its expansion is the rise of debt scale,but the asset-liability ratio has been stable at about 80%,which is related to the company's expanding issuance of perpetual bond.Because of the special provisions of perpetual bond and the imperfect relevant provisions,although it can modify the financial statements,the essence of debt will still bring risks to enterprises.The development of perpetual bond in our country is short,so there is little research on it.At present,we do not know enough about the actual effect of real estate financing with perpetual bond.Therefore,this paper studies the effect of the perpetual bond financing of Languang Development,which can provide reference for other similar real estate enterprises to correctly understand the actual effect of perpetual debt financing.This paper uses case study,comparative analysis and event study methods,taking the Languang Development as an example,based on the trade-off theory,pecking order financing,asymmetric information and other theoretical basis,this paper first introduces the basic situation and terms analysis of perpetual bonds issued by Languang,and analyzes the motivation of its perpetual bond issuance is to meet the expansion of capital needs,lock in long-term funds and improve capital structure.Secondly,it analyzes the effect of perpetual bond financing from four aspects: the comparative financial effect between perpetual bond and traditional financing tools,the direct financial effect of perpetual bond financing on enterprise operation,short-term market effect and risk.Finally,it puts forward relevant suggestions.The results show that: Firstly,compared with common equity,the cost of perpetual debt financing is lower,compared with ordinary bonds can reduce financial leverage,but the income is lower than both.Secondly,perpetual debt financing can only increase the net operating cash flow,solvency and profitability of enterprises in the short term,which is unsustainable,and the long-term solvency is only temporary modification,can not really improve.Thirdly,the actual issuance of perpetual bond has a negative announcement effect on investors,and the market value of enterprises will be negatively affected.Fourth,there are certain risks in perpetual bond financing: the high interest rate of perpetual bonds will erode corporate profits;Enterprise debt gathering will increase the risk of redemption and payment of perpetual bond;The redemption of perpetual bonds will make the capital structure of enterprises unbalanced;Policy regulation will also aggravate the credit risk of perpetual debt and the risk of accounting change.Based on the above conclusions,it is hoped that similar real estate enterprises should strengthen their credit construction,enhance their bargaining power,rationally match the financing term of perpetual bonds with the project capital cycle,control the appropriate issuance scale,strengthen their own operational capacity,and pay close attention to the impact of policy changes on the operating environment of real estate enterprises and accounting treatment of perpetual debt in real time.