Research On Financing Effect Of Perpetual Debt In Construction Industry Under Deleveraging Background

Since the supply-side reform policy was proposed,"deleveraging",which is listed as one of the five major tasks,has been regarded as the focus of reform,especially for enterprises to reduce high leverage.Construction industry,as a typical capital-intensive industry,develops rapidly with the operation mode of high debt ratio and becomes one of the typical high-leverage industries.As an important part of our national economy,the construction industry is the key implementation area of deleveraging policy.Enterprises maintaining high leverage operation will not only increase financial risks,but also easily trigger the bottom line of risks of our economic security system.In this regard,relevant departments have issued a series of documents repeatedly requiring enterprises to deleverage.How to leverage in order to ensure the need for capital is a huge problem for enterprises.The introduction of perpetual bonds provides a new idea to solve this dilemma.The inclusion of perpetual bonds into equity instruments can reduce the leverage of enterprises.Under the requirement of deleveraging policy,what kind of financing effect will be produced by issuing perpetual bonds is worth discussing.Based on the literature review of "deleveraging" and "perpetual debt",this paper introduces the theories related to perpetual debt financing,including the optimal capital structure theory and the prioritization financing theory.Then,the deleveraging background and perpetual bond issuance situation in China are summarized and introduced.China Metallurgical Corporation is selected as the case study object,and the basic situation of the company is introduced from four aspects: development history,equity structure,business status and capital structure status.The main part of case analysis analyzes the effect of perpetual bond financing from four aspects: financing cost,capital structure,financial performance and short-term market reaction.The financial performance is analyzed by combining traditional index analysis and EVA value evaluation model,and then the potential risks of perpetual bond financing are analyzed.And the construction industry on the deleveraging background of perpetual debt financing put forward relevant suggestions.Through the case study,it is found that the perpetual debt financing can reduce the comprehensive financing cost and reduce the financial leverage without diluting the original shareholders’ equity.In terms of financial performance,it can change the cash flow situation,improve the solvency and increase the economic added value of the enterprise.Through the analysis of short-term market effect,it is found that market investors have a negative attitude towards corporate perpetual bond financing.Enterprises should fully consider its impact on stock price when choosing perpetual bond financing.In addition,there are risks such as profit compression,leverage rebound and policy changes behind the financing of perpetual bonds.In this regard,the author puts forward relevant suggestions: issuers should grasp the opportunity of issuing perpetual bonds and improve the efficiency of using funds;Improve their hematopoietic ability,control high leverage from the source;Controlling the ratio of long and short debts and optimizing the asset structure reasonably;Establish the risk prevention consciousness and build the risk early warning system,in order to provide a certain reference for the construction enterprises to issue permanent bonds.