1. What does perpetual debt mean?
Perpetual bonds are also called indefinite bonds, that is, there is no clear maturity or a long maturity. The bondholder does not exercise the right of redemption, but the issuer has the right to choose redemption or renewal at a specified time according to the redemption terms, so many perpetual bonds are not really permanent, but are forcibly redeemed by the issuer after being issued for a period of time.
Perpetual bonds have a pricing cycle. The maturities of perpetual bonds issued in China are mainly 3+N and 5+N, that is, the interest rate of bonds is locked at a fixed level within three to five years, and the coupon rate level is generally higher than that of credit bonds of the same level.
Perpetual bond is not an independent bond. Medium-term notes, corporate bonds, corporate bonds and other bonds all contain perpetual bonds, among which medium-term notes account for the highest proportion.
2. Why issue perpetual bonds?
Most of the issuers of perpetual bonds are local state-owned enterprises and central enterprises, and the asset-liability ratio of some enterprises is basically above 50%, so the demand for deleveraging is very urgent. Therefore, reducing the asset-liability ratio of enterprises is one of the main purposes of issuing perpetual bonds.
For the issuer of perpetual bonds, perpetual bonds are usually included in the "other equity instruments" in the owner's equity statement, which can reduce the asset-liability ratio of state-owned enterprises and central enterprises to a certain extent and play a role in reducing leverage. At the same time, perpetual bondholders will not participate in the actual operation of the company, nor will they dilute the company's equity.
The above content about what perpetual debt means, I hope it will help everyone. Warm reminder, financial management is risky and investment needs to be cautious.