Research On The Effect Of Perpetual Bond Issuance In The Construction Industry

The construction industry is very important in China.China’s construction industry’s total output value and added value have hit record highs and has become the world’s largest construction market.The funding needs of Chinese construction companies are also increasingly significant.The construction industry has the characteristics of a long project cycle,large initial investment,and slow return of funds.Enterprises need external financing.As of the end of 2019,the construction industry has become the second largest industry for the issuance of perpetual bonds,with its amount accounting for 15.02%.This shows that perpetual debt has become the preferred choice for many construction companies.This article analyzes the reasons why construction companies choose to issue perpetual debt financing: 1.It conforms to the financing priority order theory,which can reduce the risk of maturity mismatch;2.Optimize the capital structure of the enterprise;3.Proper risk and return.Among the construction enterprises,this article selects China Communications Construction as the representative to study the effect of issuing perpetual bonds.The perpetual bond issuance time of China Communications Construction is clear,the issuance interval is long,and the issuance has a certain scale,and it is more representative.This article focuses on the analysis of the impact of the issuance of perpetual bonds on the financial benefits of China Communications Construction,the cost of issuing perpetual bonds,and the analysis of market responses before and after the issuance of perpetual bonds.This article first briefly outlines the issuance regulations of China Construction and Sustainable Bonds.Afterwards,from the three perspectives of profit-related financial indicators,current assets-related indicators and liabilities-related indicators,the analysis of the changes in the financial benefits of China Communications Construction after the issuance of perpetual bonds confirms that the issue of perpetual debt to China Communications Construction ’s profit-related financial indicators and liabilities Related indicators have been optimized.However,there is no obvious evidence that the perpetual bond issuance has improved the relevant indicators of current assets.In order to compare with other financing methods,this article assumes the financing costs of equity financing and bond financing,and compares it with the cost of perpetual bond issuance.It is believed that perpetual bonds have higher cost performance.This article also analyzes the benefits of perpetual bonds from an external perspective,using the event analysis method to analyze the stock price changes of China Communications Construction before and after the issuance of two perpetual bonds in 2014 and 2018,respectively.The issuance of perpetual bonds in 2014 boosted the stock price.The perpetual bond issuance in 2018 was cold.The market’s attitude towards the announcement was relatively negative.This article believes that it is a combination of the risks in the terms of the perpetual bond issuance in 2018 and the overall low market temperature in 2018.Therefore,the impact of perpetual bond issuance on stock prices is not fixed.From the perspective of financial benefits,the issuance of perpetual bonds does have a positive impact on some financial indicators.But the pressure on current asset-related indicators does not mean a complete release.The cold reaction of the stock market to the announcement of China Communications Construction’s perpetual bond issuance in 2018 also shows that perpetual bonds are not a general measure to solve all problems.At the same time,the liquidity risk,the risk of damage to shareholders’ equity,the systemic risk and the policy risk that may arise in the issuance of perpetual bonds cannot be ignored.Therefore,based on the case analysis and empirical analysis of the issue of perpetual bonds issued by China Communications Construction Corporation,this paper also puts forward corresponding suggestions for the issue of perpetual bonds by related companies in the construction industry.Perpetual bonds are only a means of financing.Therefore,the first piece of perpetual debt issuance proposal put forward in this article is to improve the enterprise’s own operational capabilities.For the implementation part of the perpetual bond issuance,this article suggests: optimize the timing of issuance while paying attention to the risk of redemption;pay attention to policy changes and standardize the issuance of perpetual bonds.