Initial Public offering
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Beijing Enterprises
Initial Public Offering
Professor. Huang
2012/4/5
09级金融
叶露 0091123041
朱佳丽 0091123033
王佳佳 0091123024
王皖玥 0091123021
程艺涟 0091123042
涂妍灵 0091123044
Contents
Net Asset Ratio Method (净资产倍率法) ————-10
Discounted Cash Flow (现金流折现法法) ————10
Part Three Conclusion：Price Suggestion —12
Part One Qualitative Analysis
1. Case Overview
Company: Beijing Enterprises Holdings Limited
Market: Hong Kong Stock Exchange
Date of IPO: 29 May, 1997
Industry: consumer products, services, infrastructure
Category: Red Chip Company
Shares to be issued under the Public Offer: 150,000,000
Lead managers of the issue: Peregrine Capital and Morgan Stanley
Target: price the IPO to raise the maximum possible capital through the offer
2. General Economic Environment
(1) Chinese Mainland
Policy shift
For several decades, the PRC followed a policy of complete isolation from the rest of the world. The economy was state-run and centrally planned. Around the late 1970s, China made a shift—experimenting with economic reforms.
“Reform and Opening up”
“Socialist Market Economy”
Move slowly toward a market-oriented economy
The achievements and challenges of market-oriented reforms
(a) China- import, export & forex (1985 to 1995)
Export and import volume rose and soared especially from 1993 to 1996.
Balance kept favorable for the years 1995 and 1996 ,with figures of RMB91.2 billion and RMB100.4 billion respectively .
Enjoined the privilege of having had Most Favoured Nation status accorded to it by the US.
(b) China – CPI & Inflation 1985 to 1996
RMB was volatile to an extent till 1994 and had been steady thereafter, depreciating only marginally against the US dollar.
(c) China – GDP (bn) Rmb
China GDP rose from about 3000 billion RMB in 1988 to 17000 billion RMB in 1996
(d) China- Exchange Rate Movement June 1992 to Mar 1997
Steady exchange rate due to strict foreign-exchange controls by the SAFE
Economic indicators for the PRC-1990 to 1996
(e) legal system had not kept pace with the economic reforms.
Relatively inexperienced judiciary in implementing extant laws
Uncertain and sporadic enforcement of the law
There is no treaty or arrangement that provided for the recognition and enforcement in the PRC of court orders promulgated in other countries with which the PRC had business relations.
(f) Not freely convertible currency.
Relatively inexperienced judiciary in implementing extant laws
There were little chance of mainlands stock exchanges being internationally recognized
Looking outwards—Hong Kong
(2) Hong Kong
Background
Chinas currency was not freely convertible
China need cash to continue its economic reforms
The companies listed on the New York Exchange yielded little because of the small volumes traded
Hong Kong–Chinas Gateway
Capable of raising enough money for mainland
Lawyers, accountants, analysts and merchant bankers are internationally recognized.a
Already earned a place among the worlds largest and most active markets in futures, foreign exchange and gold trading, etc.
Analysis of Red Chips
Red Chips were extensions of governmental organizations, with their financial disciplines, in terms of investments and cash rising, being laid down by a holding company and a controlling government body. These companies came into existence in two ways. One way was through the back door by buying an inactive Hong Kong-listed company. The other was to incorporate a holding company in Hong Kong and have it listed on the Hong Kong Stock Exchange.
Red Chip companies usually bought assets from its parent as a kind of asset injection, which ultimately translated into better profits and higher dividend pay-off. Red Chips typically bought operations for only five to ten times their earning, while