Financial Risk Analysis Of Real Estate Enterprises Perpetual Debt Financing

Along with the rapid economic growth in China and the national’s policies adjustment and completed to related enterprise,the real estate industry experienced a road from fluctuated to a booming development,and become a major pillar part of China’s economy.However,capital raising has been always be a crucial problems to real estate companies,especially most of them are having the problems like unreasonable finance structure,scare of raising source and once the company rely too much on the single source,the debt ratio will keep a high level;Moreover,since the leverage ratio is high enough,and by accumulation these obstacles may significantly influence the re-raising to the real estate corporates.Meanwhile,the outside capital raising is not satisfied too,the shrinkage of banks’ credit debt,limitations to real estate trusts,complicated process of share raising and immature of Chinese stock market.Under that circumstance,the obstructed raising channels and expensive raising cost are the symbols of the difficulties of real estate firms,and hindered the sustainable development of the industry.In this scenario,perpetual bond was introduced as a less limitations with public bond and could increase the capability of firms to re-raising funds,and its advantages in reducing debt ratio,enhancing capital structure are acknowledged and admired by corporates and investors.Evergrande Group’s application of perpetual bond in 2013 blew the horn of its developing in China.Then,other major real estate companies followed this trend,which makes perpetual bond financing hot.Up to now,perpetual debt,as the rising star,has been implemented for almost four years,and its influence on Evergrande Group’ long-term development and financial risk is beginning to take shape.This paper uses literature research method and case analysis method on real estate enterprise who used perpetual bond to discuss the related financial risk.Based on the introduction of related concepts of perpetual bond,this paper analyzes the specific terms of the perpetual bond issued by Evergrande in 2013.and takes a comprehensive analysis on the reason of the distribution of the perpetual bond,the effect of the distribution and the influence on the financial risk,combined with its subsequent performance and development.Through the discussion,this paper aims to help people have a comprehensive understanding of the perpetual bond.As for the real estate enterprises we hope they can make good use of perpetual bond and pay attention to its risk in the case of its advantages.This paper also hopes to provide some reference for the decision-making and supervision of the financial authorities.