Exploring the special features and risks of perpetual bonds

As the name suggests, a perpetual bond is a bond without a time limit. However, “without time limit” here means with no maturity date, but not lasting forever. Perpetual bonds originated from the era of 18th century Napoleonic wars, when the UK treasury of the day issued a bond with no maturity date to raise funds for the Anglo-French War, to relieve the financial pressure from the long battle and increase the flexibility of financial policy.

Different from the common bond – apart from having no specific maturity date – the issuer of the perpetual bond has no obligation to redeem the principal and only has to pay the agreed interest to the investors year by year.

Similarly, the investors of the perpetual bond have no right to require the issuer to redeem the debt prematurely, and the relevant investment agreements or loan contracts should not include any default clauses that may trigger the acceleration of maturity of the perpetual bond, even if the issuer delays in paying the overdue interest.

Li Zheng is an associate at Zhonglun W&D Law Firm