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Research on the Market Reaction to the Extension of CIFI Group’s Dollar Perpetual Bonds

Author(s)

Wenkang Zhao

Affiliation(s)

Business School, University of Shanghai for Science and Technology, Shanghai, China

Abstract

As a hybrid financing instrument integrating debt and equity features, perpetual bonds are widely used among real estate enterprises in China. However, amid industry downturns and tightening financing conditions, the frequent “extension” of perpetual bonds has drawn significant market attention. This paper takes the extension of CIFI Group’s US dollar perpetual bond in August 2022 as the research subject and employs the event study method to analyze both the short-term and long-term market reactions. The findings reveal that on the announcement date of the extension, the market reaction was moderate with a positive abnormal return, mainly due to prior policy measures and market expectation management. However, in the long run, the cumulative abnormal return over the 40 months following the extension remained negative, indicating a continuous deterioration in market confidence in the company’s solvency and corporate governance. This study highlights the market signaling effect of “forced extension” in perpetual bonds and provides insights for investors in risk identification and for enterprises in financing decisions.

Keywords

Perpetual Bonds; Extension of Perpetual Bonds; Market Reaction Study; US Dollar Bonds of Real Estate Enterprises; Chinese Enterprises.

References

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