Analysis On The Reasons And Influence Of Perpetual Bond Renewal

In recent years,China’s economy has been advancing by leaps and bounds and has attracted worldwide attention.Chinese companies are also following in their footsteps and developing rapidly.The expansion of an enterprise is inseparable from the support of a large amount of funds,and the profit generated by its own operation is far from meeting its development needs.Therefore,a new type of financial instrument with high ratings and high coupons that can meet long-term funding needs—sustainability Debt,began to apply and develop in China.Although perpetual debt can exist forever in theory,it has to pay a high price.If the company does not operate well,the large amount of perpetual debt that cannot be repaid will further deteriorate the company’s financial situation.Therefore,the issuer is less likely to choose deferred interest or not redeem it at maturity.However,in recent years,the market practice of redemption of perpetual bonds at maturity has been broken,and perpetual bond renewal behaviors are on the rise.Among them,credit is forced to renew due to a series of negative events such as credit defaults and poor management.Such perpetual bonds have caused large losses to the issuer,investors and the bond market.Therefore,this article takes "15 Sengongji MTN001" as an example to analyze the reasons and impact of its renewal,hoping to provide ideas for the issuer to rationally apply perpetual bonds,protect the interests of investors,and ensure the healthy development of the perpetual bond financing market.This article first starts from the current status of China’s current perpetual bond issuance and renewal,then combs the issuance and financing status of "15 Sengongji MTN001",and then discusses the status,motivation and impact of the extension of "15 Sengongji MTN001".This article concludes:(1)The scale of perpetual bond issuance continues to expand,and the renewal is mainly divided into active and passive renewal.At present,some issuers in China have chosen to renew their holdings of perpetual bonds.The reasons are that there is no coupon rate reset and jump mechanism for this part of perpetual bonds,and the issuers can use the advantages of terms to take advantage of the spreads.The expansion time obtains lower financing costs than the financing market.Second,the qualifications of the perpetual bond issuers have deteriorated due to their own financial deterioration,so the issuer has to choose to renew the perpetual bond.(2)Issuing perpetual bonds is conducive to business development.Issuing perpetual bonds is conducive to opening up new financing channels,also because of perpetual bonds.With the "share" nature,companies can use this to achieve the effect of beautifying their balance sheets.(3)The forced renewal of perpetual bonds is caused by a combination of multiple factors,and the impact is relatively severe.The renewal of perpetual bonds is due to the macroeconomic downturn and the issuer’s rising financing costs,the fierce competition in the industry and the overcapacity,and the lag in rating results that cannot be issued in a timely manner.People play an early warning role.Fourth,because of the excessively high perpetual ticket valuation yield,the continuous loss of operating business profits,and the high short-term liquidity pressure,several factors have combined to cause the issuer’s credit to deteriorate and the issuer’s inability to redeem the perpetual debt.Jin,forced to choose the behavior of renewal.The above behaviors have also increased the local debt credit risk,caused all parties to question the bond and the issuer’s credit qualifications,and at the same time,the renewal behavior has also eroded the issuer’s profits,increased the difficulty of its external financing,and caused investors Serious damage to interests.In addition,the renewal of credit deterioration perpetual bonds has caused market risks to accumulate,and investors cannot effectively identify risks,which has adversely affected the financial market.In response to the above phenomenon,this article proposes that perpetual bond issuers should strengthen credit risk prevention and control,improve business capabilities,strengthen liquidity risk prevention and control,and guarantee solvency.Investors should improve risk identification capabilities,strengthen post-investment tracking management,and rating Institutions should establish a dual rating system,improve rating methods,and regulators should strengthen the supervision of the issuance of perpetual bonds and promote the diversified development of perpetual bonds.