Study On The Motivation And Effect Of The Perpetual Bond Financing Of HISCO

Perpetual bonds emerged in China in 2013 and have similar characteristics to ordinary bond financing and equity financing,which can avoid financing restrictions and can be credited to the owner’s equity of the issuer through the design of the terms,alleviating the financing difficulties of some private industries.After the "deleveraging" policy was issued in 2015,state-owned enterprises gradually became the main issuers of perpetual bonds.On the one hand,the total amount of 8 billion issued by HISCO is typical for the whole steel industry.On the other hand,in the whole perpetual bond market,most of the perpetual bonds are issued by state-owned enterprises with high indebtedness,and HISCO is a large state-owned enterprise with high asset-liability ratio,which has strong motivation to issue perpetual bonds.On the other hand,if this paper look at the whole perpetual bond market,most of the perpetual bonds are issued by SOEs with high debt ratio,and HISCO is a large SOE with high balance sheet,so it has strong motivation to issue.First,this paper compares the existing literature on perpetual bond,defines the concept of perpetual bond,and summarizes the characteristics of its issuance terms;compares it with common stock,bonds,and preferred stock to explore the comparative advantages of perpetual bond.This paper uses the theory of preferential financing,signaling theory and financial contract theory as the theoretical basis.Second,focusing on the case company HISCO,the paper outlines its development history and current industry status and financing characteristics,and analyzes how the terms of perpetual bonds protect the interests of issuers and investors from the perspective of financial contracts.Again,this paper analyze the macro financing environment,financing needs,and financing channels,and analyze the motivation of HISCO’s issuance of perpetual bonds;explore the effect of perpetual bonds on corporate capital structure,debt servicing capacity,financial flexibility,and the use of capital for transformation and upgrading;and use the event study method to analyze the market reaction after the issuance and redemption of perpetual bonds with the help of stock price movements.The study found that the motivation of HISCO’s perpetual bond financing is to lock in long-term capital for transformation,broaden direct financing channels,ease the pressure of deleveraging policy,take advantage of the low issuance threshold of perpetual bonds,and maintain the stability of equity structure.In terms of effect,the issuance of perpetual bonds by HISCO helps the company to optimize its capital structure,improve its short-term and long-term debt servicing capacity and enhance its financial flexibility to a certain extent;the attribute of perpetual bonds containing rights makes its cost of funds higher than ordinary bonds and lothis paperr than stocks;the perpetual bond funds promote the company to form technical advantages,environmental advantages and product advantages;the issuance and redemption of perpetual bonds have a positive effect on the company’s share price.In summary,when the financing environment is poor,perpetual bonds become the company’s preferred financing option,alleviating HISCO’s lack of funds and financing difficulties,achieving the policy goal of reducing leverage and improving various financial indicators.Based on the above findings,it is recommended that high credit enterprises issue perpetual bonds;reasonably design the interest rate jump clause to ensure the advantage of perpetual bond deleveraging;grasp the timing of issuance and redemption to save the financing cost of perpetual bonds;control the scale of perpetual bond financing and develop multiple financing channels.The significance of this study is to conduct a comprehensive study on the case of HISCO’s perpetual bond financing to provide help and reference for companies planning perpetual bond financing in the future.