An Analysis of the Impact of Issuing Perpetual Bonds on Enterprises: A Case Study of Evergrande’s Perpetual Bonds
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Abstract
On December 20, 2017, both the Shanghai Stock Exchange and the Shenzhen Stock Exchange introduced business guidelines for perpetual bonds, thereby clearing the path for their issuance on the exchanges. Perpetual bonds are highly flexible instruments, offering issuers options for redemption, interest rate adjustment, and deferral of interest payments. Additionally, perpetual bonds that meet certain criteria may be included in equity capital. Throughout the life of the perpetual bond, shareholders’ return on equity tends to decrease; however, post-redemption, the return on equity increases sharply. Enterprises must fully comprehend the features, advantages, and potential impacts of perpetual bonds, and, with the goal of maximizing shareholder value, strategically combine equity financing and debt financing, long-term and short-term liabilities, as well as preferred stock and perpetual bonds.
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