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Perpetually Papering Over Reform

Issuance of perpetual bonds in China’s financial markets has spiked in recent months. These bonds are mostly sold by China’s state-owned firms, as they make it easier for SOEs to meet regulatory deleveraging targets while also preventing a dilution of government control over these firms. In other words, they help SOEs to comply with government targets without fundamental reform. We expect SOEs to significantly increase issuance of perpetuals this year, which will support investment outlays, but in the long run the higher coupons on these liabilities will likely add to companies’ overall financing costs.

Posted January 23, 2019
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