The Study Of The Financial Effects Of Perpetual Bonds On Real Estate Companies

With the rapid development of China's economy,as a pillar of the national economy,the real estate industry is in rapid development,which has has the vital significance in the employment,consumption,investment and income of local government and huge contribution to GDP,and also it plays an important role to promote economic development.In just a few years the real estate industry has accumulated a lot of capital,and with the expansion of the real estate bubble,the negative effect that comes with it is also obvious.That governments have introduced a variety of macroeconomic regulation and control policy to regulate the real estate industry overheating phenomenon.As a result of the real estate policy tightening,cities have the limit for purchasing,also from moderate to tight monetary policy and the traditional bank credit financing channels blocked.How real estate enterprises financing has become the primary issue.By introducing Evergrande offering sustainable debt financing cases in China,this paper introduces the related concepts and sustainable debt's present development in China.Then comparing the advantages and disadvantages of sustainable debt,this paper analyzes the process of release and the motive.In terms of financial effect analysis,it is divided into performance analysis and market reaction analysis.Firstly,by studying the financial statements of the company,the paper analyzes the effect of issuing perpetual bonds on the solvency and cash flow of Evergrande.In terms of solvency,after the issue although the asset-liability ratio was no big change,the more representative indicator showed that China Evergrande actual liabilities under pressure was very high,which indicates that the off-balance sheet financing of sustainable bonds has a covering effect on the solvency of the on-balance sheet.In terms of cash flow,the increase of cash flow was mainly attributed to financing activities generated cash flow increasing rapidly.The sustainable debt is the source of financing after the bank loan.In the empirical part,the article focus on the influence of sustainable debt on performance and stock price of Evergrande,analyzed through factor analysis and event study.After extraction factor as the main composition factor selected from four categories of financial indicators,income factor and development general trend indicates that all the factor score surged comparing one's before financing,which showing the sustainable debt financing had positive effects on corporate performance.Then using event study method to calculated the normal yields in the window period and the estimated period.After that,the excess returns and cumulative excess returns could be calculated,in order to judge whether there was the short-term market influence to the company's share price.Results show that investors appreciated its promising future so they moved to buy stocks,leading to the excess return.The sustainable debt redemption was the good news for the market and caused the rising stock prices.So far,in the the theory of the sustainable debt,literature mainly focuses on the research of its accounting attribute and financing risk.This paper discusses its impact on company's financial effects.The main conclusion of this paper is as follows: in the process of expansion,Evergrande got sufficient cash flow through sustainable debt financing,while concealing the fact that the actual debt ratio was high.In making full use of leverage to complete the land layout,Evergrande's redemption of all sustainable debt has maximized the interests of the shareholders,and investors are bullish on Evergrande's prospect.Therefore,Evergrande has improved corporate performance and stock value through the operation of perpetual bonds.In the current situation where financing is very difficult,other real estate enterprises can also learn from this case.