Wang Jie explains core provisions and everything else you wanted to know about perpetual bonds in China
Perpetual bonds are a type of financial instrument that has been offered quite frequently in recent years. However, for the financial institutional investor, how to design terms that are binding on the debtor, whether it is possible to demand the provision of credit enhancement measures for perpetual bonds, and what impact the determination, accounting-wise, of the nature of perpetual bonds has on the commercial terms are all questions requiring particular attention at the product design stage.
Usually, perpetual bonds do not provide for a specific repayment term. Under specific conditions, they may be listed as an equity-type item, not a liability, in accounting accounts. For a debtor, perpetual bonds offer numerous advantages, such as improving its financial statements, reducing its asset-liability ratio, pre-tax deduction of the interest, etc. In mainland China, there remains a certain lack of legislation governing perpetual bond products, but, considering such features as the flexibility in the offering methods and the diversity in offering conditions, they are commonly deemed to be a financial instrument with great potential.
Wang Jie is a senior legal counsel at Ping An Pension, and a legal expert at the Insurance Asset Management Association of China