Research On The Motive And Effect Of China National Railway Company’s Perpetual Debt

Perpetual bonds refer to securities where the bond is uncertain on which date it will mature.Investors do not know the specific date on which they can get the principal invested,but they can obtain due interest from the debtor on a regular basis.Renewable corporate bonds,medium-term notes,etc.The use of perpetual bond financing products has greatly promoted the innovation of my country’s bond market.Perpetual bonds have both "share" and "debt" characteristics.They are classified as equity instruments or debt capital.The key is the explanation and interpretation of terms related to maturity,order of repayment,and interest rate jump in the terms of issuance.different.When perpetual bonds are treated as equity,they have many advantages such as maintaining the original control of the enterprise,increasing the level of enterprise equity,reducing the debt ratio,and meeting the asset allocation needs of long-term investors,especially for those who need to supplement liquidity and are unwilling Companies that overburden the cost of capital are more attractive.In addition,perpetual bonds are not true "perpetual" indefinitely because the cost of renewal is relatively high,and it cannot show the true debt level of the enterprise,which triggers the debt risk of the enterprise during the debt repayment period.Perpetual bonds have been on the stage of my country’s financial market since Wuhan Metro successfully issued renewable corporate bonds in 2013.Issuers generally think about whether to redeem perpetual bonds.Among them,China Railway Group redeemed the first phase of medium-term notes issued by the company in 2014 at a par value of RMB 3 billion in 2019.The case study of China Railway Group will help to explore why perpetual bonds are favored by domestic issuing companies and what economic effects this economic behavior brings to companies,so as to provide references for companies with relevant financing intentions.Based on the background of the times and the actual situation of China Railway Group’s issuance of perpetual bonds,this article combines the research methods of case analysis,combine qualitative analysis with quantitative analysis on the basis of literature research methods,using MM theory,prioritized financing theory,and signal transmission Theory and trade-off theory discuss perpetual debt.Mainly study the possible motivations of China Railway Group’s issuance of perpetual bonds,including: meeting the company’s capital needs,supplementing working capital,innovating financing methods,reducing heavy reliance on bank loans,reducing corporate leverage,improving its capital structure,and stabilizing the company Rating,to send a signal to the outside world of good business.Combining these motivations for the company to issue perpetual bonds,this article further studies the economic effects of perpetual bond issuance,and analyzes the financial and non-financial effects of perpetual bond issuance.Through the analysis of China Railway Group ’ s issuance of perpetual bonds,this article draws the following conclusions: Perpetual debt financing has enriched China Railway’s existing financing methods,but its initial issuance of 3 billion perpetual bonds has not been used to repay bank loans.The company’s solvency has been significantly improved,especially the short-term solvency has even declined slightly.The company’s net cash flow from financing activities in 2015 and 2018 both turned from negative to positive.Perpetual debt financing has raised more funds for the company,and the possession of these funds can support the group’s strategic investment.In 2018 and 2019,China Railway Group reduced its asset-liability ratio and leverage through perpetual bond financing.At the same time,it can also adjust the proportional relationship between various capitals,which has a beautifying effect on the capital structure.When analyzing the market effect of the company’s issuance of perpetual bonds,it is found that the issuance of perpetual bonds has a certain negative impact on the company ’ s stock price.Finally,this article puts forward three suggestions on how to promote the prosperity and development of my country’s perpetual bond market.