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Going Public in Overseas Stock Markets 中国公司境外上市. Allied World Economics & Technology Office (Aweto) 联盟世界经济技术办公室 Friday, November 14, 2014. 中国企业美国上市回顾 2004年海外IPO企业数量行业分布 、 融资额行业分布 中国政府对境外上市的态度 为什么要上市? 在美国上市对中国企业的挑战(上市的不利因素) 上市要考虑的一些事项 谁到哪里上市 选择境内或境外上市 股市的信息浑浊程度 中国股票在不同股票市场上的市盈率 - PowerPoint PPT Presentation
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Going Public in Overseas Stock Markets Allied World Economics & Technology Office (Aweto) *
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Table of Contents 2004IPO IPONASDAQSB2 NASDAQDue DiligenceSEC
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I. History of Chinese Companies Public Listing Overseas
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History of Chinese Companies Public Listing Overseas1992-19941994-19961996-19971999-20002003-Present 2002-Present
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1992199419921992109$1611$33199373920014 1993715H GDRADRGDP 19988H50HADRGDR
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Brilliance China Automotive Holdings Ltd. (CBA) Brilliance China ADS (NYSE:CBA) Volume: 5,000 Avg Vol (3m): 15,147.7 Market Cap: 545.48M (12/9, 2005)P/E (ttm): N/A Splits:13-Jul-99 [3:2], 04-Oct-99 [5:1], 17-Apr-00 [1:5]199210 NYSE7200 Clark T. Randt Jr 2001
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1994
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1994-1996(1994)
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Huaneng Power International Inc. (HNP) Huaneng Power INTL (NYSE ADR:HNP HKG:0902.HK ) Volume: 59,800 Avg Vol (3m): 87,070.8 Market Cap: 8.05B (12/9, 2005)P/E (ttm): 13.09 EPS (ttm): 2.04 199461998H20002001
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1996-19971996~9710ADR1200199751811.48446612.25 1997 15
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70201988/93040Philip Tos 8090 1992IPO92( )96/512009761077.510097/11/161119981128000
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1999-20001999714$20$67.2235%11011658101.37517137200011182 128161111.061732.0680171977$10.061999113OTCBB4011023.54.8 20004166 :199960%
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Initial Public Offering on NASDAQSARS93200312933.94420 (American Depositary Receipt ADR) 1889%200010 7560US$ 75.6 million2nd Offerings:12/8/04, Ctrip filed with SEC (secondary offerings) to sell 2.2 million ADS representing 4.394 million ordinary shares (19.33%): amount filed 118.6 million, stock price at filling $54.00. Credit Suisse First Boston and Merill Lynch are the underwriters. Shelling shareholders are Tiger Technology Private Investment Partners 26%Carlyle Offshore Partners II IPO32%Orchid Asia II IDG Technology Venture Investment IDGNeil Nanpeng Sheng 11%James Jiangzhang Liang8.6%Qi Ji, and Min Fan. SoftBank() Morningside()
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2002-Present 2002 ,1993OTCBB1997CTCCTCCosmeticsHoldings1997OTCCTHI1999NASDOTCBBAXM
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Qiao Xing Univ Tel (Nasdaq NM: XING) 1999217NASDAQ100017268$8.375$11.519991231281.5QIAO XING UNIV TEL (Nasdaq NM: XING) Volume: 59,800 Avg Vol (3m): 87,070.8 Market Cap: 8.05B (12/9,2005)P/E (ttm): 13.09
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Suntech Power 20051215SUNTECH POWER HLDGS (NYSE:STP)4IPO26.38 million ADR20 millionADR$15$395 millionSTP 21.2046.89%6800CEO14.416
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Suntech PowerCowen & Co. 30395.7ADR 624420025$137 million16118000.21120MW32.816.515
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The Global IPO Market in 20042004IPO2004IPO:151612402000Thomson Financials
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2004IPO
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2004 2003 32% 21% US28% (35.2b)4% (4.6b)30% 52%10% (12.9b) China 10%(12.5b)3% (3.6b)2% (3.1b)2% (2.9b)1% (1.7b)1% (1.1b)1% (0.9b)26% 15%6% (6.8b)5% (5.6b)4% (4.4b)3% (3.3b)2% (2.3b)1% (1.5b)1% (1.1b)1% (0.9b)1% (0.9b)1% (0.8b)1% (0.5b)7%6% (7.8b)1% (0.6b)3%1% (1.6b)1% (1.2b)2%1%(1.1b)
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2004IPO
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2004IPO36% 12% 10%
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2004IPO 41% 22% 17%710%
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2004IPO 2004IPO/IT 23% 22%//
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2004IPO 2004IPO24%20%/IT19%/
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Chasing China's growthMany of the Chinese companies seeking U.S. listings focus on their domestic market, so they provide investors access to a market where GDP is growing faster than 9% a year.20034200340857.HK23.48 13.5%20033368 33101132004IPO182161.085120IPO Google -> IPO -> -> . 101000200381%H122.2%
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Tencent, GSM102000200011SPSPUTNECNEC(QQ) 3721e2638848
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China Offshore Index801991123110200245930MSCI
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USX China IndexUSX China Index vs. DJIA vs. NASDAQ vs. SSEC (Shanghai Composite Index)
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Components for USX China Index (1/2)
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Components for USX China Index (2/2)
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200196%1961197719958924200112003101470502003,107183
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II. Why to Go Public? (Benefits of Listing)
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Easier access to the capital market and Lower cost of capital Liquidityhaving the ability to sell the stock quickly Investors place a high premium on liquidity Minority shareholders can easily cash out. Maximize shareholders interests by higher P/E Ratio.Public companies trade at significantly higher valuation than private firms with similar financial characteristics because of the liquidity of public companies. A private Companys P/E is usually about 6, whereas a public companys P/E can be more than 15. Please see the table below. By going public, the value of a company is immediately valued at a higher. So, new value is created for existing shareholders More revenues for future financingPublic company's stock can be used as collateral for loans. Creation of a stock currency to fund potential acquisition Enhancing corporate visibility and prestigeBetter company Image and more marketing and PR Benefits Equity-based compensation for management and employees increasing employees royalty and enthusiasm Make benefits package more attractive by offering stock or options to let employees work for the companys success. Assists management succession Lowering risks by distributing risks to public market 15
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Why to Go Public? -- The Benefits Enjoyed by a Public CompanyEasier access to the capital market and Lower cost of capital Liquidityhaving the ability to sell the stock quickly Investors place a high premium on liquidity Minority shareholders can easily cash out. Maximize shareholders interests by higher P/E Ratio.Public companies trade at significantly higher valuation than private firms with similar financial characteristics because of the liquidity of public companies. A private Companys P/E is usually about 6, whereas a public companys P/E can be more than 15. Please see the table below. By going public, the value of a company is immediately valued at a higher. So, new value is created for existing shareholders More revenues for future financingPublic company's stock can be used as collateral for loans. Creation of a stock currency to fund potential acquisition Enhancing corporate visibility and prestigeBetter company Image and more marketing and PR Benefits Equity-based compensation for management and employees increasing employees royalty and enthusiasm Make benefits package more attractive by offering stock or options to let employees work for the companys success. Assists management succession Lowering risks by distributing risks to public market
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15
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Public Companies Trade at a Premium
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Challenges of Listing Cost of Listing and Consummation of Management Time Disclosure Requirements, (salaries, perquisites, etc) Corporate Governance Requirements Financial and Management Discipline Fiduciary Responsibilities Diverse Investor Base Pressure from public Confidentiality Pressure to deliver Shareholder Value. Staff/Management Training Needs Risks of having lawsuitSued by Stockholders Losing control of the businessYou might find yourself not running the business they way you want to, but the way the stockholders want to.Hostile takeovers (put defensive clauses into your IPO charter)
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Going Public Disadvantages
Profit-sharingIf the firm is sitting on a highly successful venture, future success (and profit) has to be shared with outsiders. After the typical IPO, about 40% of the company remains with insiders, but this can vary from 1% to 88%, with 20% to 60% being comfortably normal.Loss of ConfidentialityA major reason why firms resist going public is the loss of confidentiality in company operations and policies. For example, a company could be destroyed if the company were to disclose its technology or profitability to its competitors.Reporting and Fiduciary ResponsibilitiesPublic companies must continuously file reports with the SEC and the exchange they list on. They must comply with certain state securities laws ("blue sky"), NASD and exchange guidelines. This disclosure costs money and provides information to competitors.Loss of ControlOutsiders are often in a position to take control of corporate management and might even fire the entrepreneur/company founder. While there are effective anti-takeover measures, investors are not willing to pay a high price for a company in which poor management could not be replaced.IPO ExpensesAn IPO is a costly undertaking. A typical firm may spend about 15-25% of the money raised on direct expenses. Even more resources are spent indirectly (management time, disruption of business).Immediate Cash-out Usually Not PermittedTypically, IPO entrepreneurs face various restrictions that do not permit them to cash out for many months after the IPO.LiabilityThe company, its management, and other participants may be subject to liability for false or misleading statements and omissions in the registration documents or in the reports filed by the company after it becomes public. In addition management may be subject to law suits by the stockholders for breaches of fiduciary duty, self dealing and other claims, whether or not true.
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IV. 6~885 AIPOIPO
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Share StructureINTERNET Legal Structure() Corporation Governance-- Minority investors, which would be all American investors, just don't have any leverage to enforce management to act in the best interest of shareholders
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Management IssuesStock Options and Incentive Plan Key managers ought to be offered options It would be normal to negotiate management terms prior to listing. Confidential Agreement and Employment/Compensation Agreement /
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V. Who should go Where?
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V. Who should go Where?IPO2000 : NYSENASDAQAMEXAIM
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Time : H Evaluation :Cost :15%~25%5000750A4%-5% Potential :AAA , HAA
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Which Market is More Transparent?Chinese investors choice:China:ShanghaiShenzhenHong KongSingaporeJapanUSCanadaLondonGermany The no. of stocks going the same direction indicate how clear a stock market is:China: 80%Singapore: 69.7%Hong Kong: 68%Japan: 66%London: 63%US: 57%
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P/E Ratio of Chinese Stocks in Different MarketsFor non-state-owned companies, their average P/E ratio:China: 60.41 Hong Kong: 22.61NASDAQ: 22.57Singapore: 5.771622.6160.415.7722.57
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2004(2004102010
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2004
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19978
2004
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200332318 200341
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Whats Wrong with Hong Kong Euro-Asia Agric (0093.HK) was stopped trading in HKSE on 2002/9/19
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Transparency Liquidity the ease and speed with which a stock can be bought and sold in the market.Depth of market refers to the amount of capital committed and the total number of buyers and sellers within the market.
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Largest stock market in the world, the value of trade is 55% of that of all world, and market cap is 36.4% of that of the world. 2001 2.3 43.5 6.398% of US investors money buy US stocks, only 2% go to overseas.Investors favorite local companies (within 100 miles).Information barrier for investors: language, culture.Your company products customers are naturally your potential investors.
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VI.
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VI. IPOSB2
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4.1 Reverse Merger or Downstream Merger or Reverse Take Over (RTO)51%: 1934100
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4.1.1 (Rights offering)
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OTCBBOTCBBlisting OTCBBOTCBBNationalMarketNYSEAMEXSmallCapOTCBB20045OTCBB3300235 AMEXNYSEOTC
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RTO10SEC 14F
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5%3-4SmallCap200NMS400
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Shell Company Over-the-CounterOTCliabilitiespending litigation300 SEC 40-10080%90%Merge85%510 NYSEAMEXNMSSmallCap
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Shell CompanySmallCap1934US GAAP5010%-15%
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Two Methods to Acquire the Shell
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Tax Concerns35%40%20%/
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Simple Tax Model100100010001000-10035%3151000-10020%180100100338100010001000-10035%315
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Political Risks1993
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IPO vs. RTOIPO6IPOIPO1739302530
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Benefits of Reverse Merger IPO30~80IPO15020~30%3~6IPOIPO IPOIPO80IPO80
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The Most Risky Issues of the Shell warranties52040TSSoftstone
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Issues Needs to Pay Attention The shell that is ultimately purchased is of paramount important to the success of the RTO.Free of problems: No lawsuits and current on its filing. Number of shares outstanding must be kept low.The value of a company also know as the market cap is computed by multiplying the number of shares outstanding by the current price. If there are to many shares outstanding the stock will never go up in price. We think for a new RTO usually somewhere between 6 and 15 million shares outstanding is about perfect. If there are to many shares outstanding the stock will not go up in price. It is very important to get the stock above five dollars $5 price triggers good events. Brokerage firms can initiate coverage.Institutional investors can purchase.The best investor is the institutional investor: holds stocks for 3 to 5 years; individuals hold stocks based on price fluctuations.
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Fundraising Before Public Listing and After secondary offering
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Reverse Merger in China53.23%51.9
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Reverse Merger in Hong Kong2001101935%30%30% 2002352119 2004331241220%
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Investment Banker in Reverse Merger
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Case Study of Reverse MergerArmand Hammer50Occidental Petroleum1970Ted TurnerRice BroadcastingTurner BroadcastingCNNTNTBlockbuster EntertainmentWaste Management, Inc.
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AXMAXM PHARMA INC (AMEX:AXJ) OTCBB3740SunkistGrowersOTCBB4 TIENS BIOTECH GR USA (AMEX:TBV) 2003/8/19OTCBB2005/4/25AMEX CHINA AUTOMOTIVE SYS (NASDAQ SC: CAAS) OTCBB2.9102.2540
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10020042006OTC:FRLK IT199911LightEnergyManagementInc.OTCBB200025450.153.5 BLPT.OB 1999920530Linux20001200036OTCBB162275480SEC0.471.6
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OTC:MGHA20004PanagraInternationalCorp2001830.90.32.740002230006000OTCBB20050.14~0.303OTC:TOPG2003116QuixitInc0.50.630.100.15054227OTC:CAAS200333.103001852000AXMAMEXAXJ20033AMEX436
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NASDAQ(due diligent)SECSEC
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4.2 IPOInitial Public OfferingIPO4000250NASDAQ600100(1800) IPOIPO80%IPO64IPO19995052000446200183200287
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UnderwritingOne investment banking firm acts as managing underwriter, and forms a syndicate of similar firms.
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Formulating the method used to issue the securities.Pricing the new securities.(P)40%20%20%20%Selling the new securities.Stabilizing the price
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Firm commitment underwriting:Underwriter buys the retire issue, assuming full financial responsibility for any unsold shares. Underwriters fee is the spread. All the risk associated with selling the issue is borne by the underwriter.Spread: Compensation to the underwriter, determined by the difference between the underwriters buying price and offering price. Best efforts underwriting:Underwriter sells as much of the issue as possible, but can return any unsold shares to the issuer without financial responsibility. Underwriter acts as an agent for the issuer and receives a commission (ranges from 7~10% of the stock sold)
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The Offering Price and Under-PricingIf the issue is priced too high, it may be unsuccessful and have to be withdrawn. If the issue is priced too low, the issuers existing shareholders will experience an opportunity loss.Under-pricing is fairly common. Empirical works show that prices of new issued stocks increased by a dramatic amount right after the offering.Why does under-pricing exist? To attract investors.
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Green ShoeBare ShoeGreen Shoe1971Green Shoe1515(15)
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SB2An SB2 is a self registration of securities which meets the requirements of disclosure of the Securities and Exchange Act of 1934. Disclosure is the fundamental backbone of the US regulatory system governing the sale of securities in public markets. A Company basically files a registration statement and a list of selling shareholders whose shares are registered for sale. The details of the registration statement are approved by the United States Securities and Exchange Commission (SEC), before the companys stock is publicly traded.Microsoft followed this same scenario of going public, building market cap and then doing a primary offering once they were satisfied with the market cap. Microsoft now have the largest market cap on the NASDAQ exchange.On March 13, 1986, the day Microsoft went public
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V. Cost and Financial Requirements to Go Public
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V. Cost to Go Public Spread:IPO 7%-8% Other direct expenses: Indirect expenses.Abnormal return:Under-pricing: Green Shoe Option: The Green Shoe option gives the underwriters the right to buy additional shares at the offer price to cover over-allotments.The total expenses of going public averaged 21.22% for firm commitment and 31.87% for best efforts.6020NYSE1/102/32.5%
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IPO : 7-10%30 30 10 /2.5 1 ()GAAPIPO
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Expenses for Listing on NASDAQ (Example) 1/29 50030500 5000588
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VI. Financial Requirements for the 3 Exchanges
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NASDAQ Global Market Financial Requirements
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NASDAQ Global Market Financial Requirements For initial listing under Standard 3, a company must satisfy one of the following: the market value of listed securities requirement or the total assets and the total revenue requirement. Under Marketplace Rule 4200(a)(20), listed securities is defined as securities quoted on NADSDAQ or listed on a national securities exchange. 34200(a)(19)" Seasoned companies (those companies already listed or quoted on another marketplace) qualifying only under the market value of listed securities requirement of Standard 3 must meet the market value of listed securities and the bid price requirements for 90 consecutive trading days prior to applying for listing. 390 Publicly held shares is defined as total shares outstanding less any shares held by officers, directors, or beneficial owners of 10% or more. 10% Round lot holders are shareholders of 100 shares or more. 100 An Electronic Communications Network (ECN) is not considered a market maker for the purpose of these rules. ECN Marketplace Rules 4350 or 4351. 4350 4351
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NASDAQ Capital Market Financial Requirements For initial listing, a company must satisfy one of the following to be in compliance: the stockholders equity requirement, the market value of listed securities requirement or the net income requirement. Under Marketplace Rule 4200(a)(20), listed securities is defined as securities quoted on NASDAQ or listed on a national securities exchange. 4200(a)(19)" Seasoned companies (those companies already listed or quoted on another marketplace) qualifying only under market value of listed securities requirement must meet the market value of listed securities and the bid price requirements for 90 consecutive trading days prior to applying for listing. 90 Publicly held shares is defined as total share outstanding less any shares held by officers, directors or beneficial owners of 10% or more. In the case of ADRs/ADS, for initial inclusion only, at least 100,000 shall be issued. 10%ADS100,000 100 "ECN" 4350 4351 The NASDAQ SmallCap Market was renamed to be NASDAQ Capital Maret in 2005.
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NASDAQ Capital Market Financial Requirements
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IPOIPO50075500010043003
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The Steps Chinese Companies take to Go Public in OverseasH200322827 Due Diligence ( )Road show
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NASDAQ A 1933 SECIPO SEC 3045The Green Shoe Option)15%101934NASDAQ1934 NASDAQ
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CFO
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US GAAPIASUS GAAPIASUS GAAPUS GAAPIASIASintentionIASFASBAICPAformIASUS GAAPFASB
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The Registration Statement :ProspectusAbout Business ()About Offering)supplemental informationSECUnderwriting agreement)SECForm S-1, S-18, SB-1 or SB-2. SEC This preliminary version of prospectus is called Red Herring.Stock Certificates ""
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F-1IPO () (),(), 430A 2
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Due DiligenceDue DiligenceIPO
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Bar Chris 1968Escott v. Bar Chris Construction Corp.Bar ChrisDue DiligenceBar Chris11IPO
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Bar ChrisIPOIPO
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Due DiligenceDue Diligence
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King & Wood (1984) (1986) (2000) (2000)130 100020 (010) 6561-2299 (010) 6561-0830 / 6561-0840 http://www.kingandwood.com/ Haiwen & Partners(1987) (1985) (1982) : 86421166, 64106920-23 :64106928, 64106929: [email protected] 100027http://www.haiwen-law.com/ Commerce & Finance Law Offices 195521985199219891991199119921993 19714 (100020)8610-65992255 8610-65991678http://www.tongshang.com/
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Sullivan & Cromwell -Skadden, Arps, Slate, Meagher & Flom Shearman & SterlingDavis Polk & Wardwell Cravath, Swaine & Moore
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SECIPOSEC70SEC3733SECSECDivision of Corporate Finance12Division OfficesOfficeOfficeOfficeSECSECSECSEC()SECSECSECSEC()SECDivision Office
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Red Chip Model
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Red Chip Model20068820051021 200698200320032004200420068820068820051021
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20002000BVI 200069(72) 2003412004
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199762021 200069([2000]72) H20%H
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(No Comment letter)2000 1999122000117 200069([2000]72)7221()
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(No Comment letter): H102003412004E
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2004721 [2004]67 3503010%
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200512411) 200542129 SAFE Circulars 29 The two notices were intended to close offshore loopholes for round-tripping of money. 11
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SAFE Circulars 1111 BVI SAFE Circulars 11 and 29 have severely curtailed VC investment in China since their promulgationAccording to a survey by VC research firm Zero2IPO, venture investment in China topped $1.2 billion in 2004. But it was down in the first half of 2005 by 8.1 percent from the first half of 2004, and down 13.8 percent from the second half of 2004. 1.652004443%24%
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200510217520051111129
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200688200698 111539 40
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Offshore Shell Bermuda , Cayman Islands , BVIBritish Virgin IslandsBermuda, Cayman Islands, BVI.Bermuda: AccentureCooper IndustriesGlobal CrossingGlobalstarIngersoll-RandMonday (Price Waterhouse Consulting)Seagate TechnologyTyco International 1% listing ruleBVIBVI
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()CEOCFOCEO50%
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BVI
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1,250
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Cayman IBC268640Grand Cayman()35,00034%1215884.151.218,000500
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50,00050,0001.00 BANK() TRUST()MUTUAL FUND()INSURANCE()REINSURANCE() 2,800, 980,50,000
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British Virgin Island60TORTOLA5059152119,000TORTOLA250,000BVIBVI 1,1 BVI/(..) /BVIBVI 198824
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VIII. Going Public In Hong Kong
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VIII. 200310H247189581439828104
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HHAA41(No Objection Letter)290030020044150~1005000800010002000
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The major basic requirements for listing equity securities on the Hong Kong ExchangeBoth the issuer and its business must, in the opinion of the Exchange, be suitable for listing. An issuer or group (other than an investment company) whose assets consist wholly or substantially of cash or short-dated securities will normally be not regarded as suitable for listing. The issuer, or its group, must normally have a trading record of not less than three financial years under substantially the same management. The profit attributable to shareholders must, for the most recent year, be not less than HK$20 million and, for the two preceding years, be in aggregate not less than HK$30 million. For new applicants, the expected market capitalization must be at least HK$100 million at the time of listing; and the expected market capitalization of securities held by the public must be at least HK$50 million. To ensure an open market for the listed securities: Normally, there must be 25% of any class of listed securities being held by the public. In the case of issuers with an expected market value of over HK$4,000 million, the percentage may be lowered to between 10% and 25%; For a newly listed class of securities, there should be generally not less than three holders of each HK$1 million of the issue, with a minimum of 100 holders. New applicants must make all necessary arrangements to satisfy the eligibility criteria as determined by Hong Kong Clearing for eligibility for deposit, clearance and settlement in the Central Clearing and Settlement System. The Exchange will normally not consider a spin-off application, to effect the separate listing on the Exchange or elsewhere of assets or business wholly or partly within the company's existing group, within 3 years after the listing of a company.
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405
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H1999[1999]83 4Net Assets: US$50M=400 M5000 Fundraising: US$50 M =400 M 6000Net Earning: US$7.5M=60 M ()If P/E=20, Market Cap=$7.5Mx20=$150M. You have to sell $50M/$150M= 33.3% of the company.405 A200343
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()233(HH)5,00025(4010)214624(12)24(12)(HH)()40253401020()2001101345
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19997:10%3000 ()5000 (100)3000()
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24
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6 345
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(100)3000() Form A1
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Depository Receipts
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Depository ReceiptsDepository ReceiptsDR CDRChinese Depositary ReceiptADRCDRAB
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American Depositary Receipt (ADR) An ADR, first introduced in 1927 to make it straightforward for a US investor to invest in a foreign issue, is a share of stock of an investment in shares of a non-US corporation. The shares of the non-US corporation trade on a non-US exchanges, while the ADRs trade on a US exchange. ADR ADRSDR1ADR DR
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ADRADR19271961150ADR1978ADR40080 ADR19961301ADR17.411.511.4 11.31301ADR426NASDAQ) 199610341ADR 1993ADR4ADROTCBBADR(China Unicom)20006ADR4.92 billion
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ADR
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ADR of Chinese Companies ()China Unicom Limited (ADR, NYSE: CHU) ()China Southern Airlines, (NYSE: ZNH) ()Sinopec Beijing Yanhua Petrochemical Company (NYSE:BYH) () () ) () ()Huaneng Power International, (NYSE: HNP) () () (144A ) (144A ) (144A/S) (144A ) (144A) (144A) ( S) ()CNOOC Limited (ADR) (NYSE:CEO) () () () () () () () () ()
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ADR CompaniesBP Amoco, (BP) U.K.British Telecom, (BTY)U.K.Chinadotcom Corporation, (CHINA) Hong KongDaimlerChrysler, (DCX) GermanyDeutsche Telekom, (DT) GermanyEricsson, (ERICY) SwedenFrance Telecom, (FTE)FranceGucci, (GUC)NetherlandsHSBC Holdings, (HBC) U.K.Infosys Technologies, (INFY) IndiaKorea Electric Power, (KEP) South KoreaLVMH, (LVMHY) FranceMitsubishi Tokyo Fin. Grp. (MTF) JapanNews Corporation, (NWS) Australia Nissan Motor, (NSANY) JapanNokia, (NOK) FinlandPacific Century Cyberworks Ltd, (PCW) Hong Kong Rostelecom, (ROS) RussiaSAP, (SAP) GermanyShell, (SC) U.K.Sony, (SNE) JapanTaiwan Semiconductor, (TSM) TaiwanTelebras Holders, (TBH)BrazilTelecom Argentina Stet, (TEO)ArgentinaTelecom de Chile, (CTC)ChileTelefonica, (TEF)SpainTelefonica de Argentina, (TAR) ArgentinaTelefonos de Mexico, (TMX) MexicoVivendi, (V), FranceVodafone AirTouch, (VOD) U.K.Volvo, (VOLVY) Sweden
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--() ( )
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X. Success or Failure of Public Listing
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Success or Failure of Public Listing
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CNOOC LTD ADR (NYSE:CEO) Market Cap:16.76BP/E:11.79CFO Mark Qiu20013CFO 19644 MBA 20053
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1999(CNOOC) 19995 2029ADSADS=208.469.612325.6670 700015001628571928 1012 1014ADS23.520186.9825131015H4.2 20%
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1620012272808835576.964.61123 16.4478131460 5002000GROWN34 2001 219BAHAHH
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PetroChina ADR (NYSE:PTR) 200042008
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996 2001255 17254700019992China.com
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20031171110
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XI. Company Evaluation
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XI. Company EvaluationDiscounted Cash Flow or Net Present Value Internal Rate of Return (IRR) Payback or Discounted Payback Accounting Rate of Return (ARR )
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Discounted Cash Flow or Net Present Value (DCF or NPV)(discount rate)(NPV)To calculate present value, we discount expected future payoffs by the rate of return by comparable investment alternatives ( this rate of return is also referred to as the discount rate, hurdle rate, opportunity cost of capital).Net Present Value Rule: NPV (or Rate-of-Return Rule: Accept investment that offer rates of return in excess of their opportunity costs of capital).NPV
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DCF Formula for Valuing Stocks n (Free Cash Flow per Share) i NPV= i=1 (1+R)i Free Cash Flow = revenue - costs - investments = EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) - taxes paid during the year - capital expenditures + changes in working capital. It is NOT correct to say that a shares value is equal to the discounted steam of its future earnings per share. That share value is equal to the discounted stream of free cash flow per share.The value of a business is usually computed as the discounted value of free cash flows out to a valuation horizon, plus the forecasted value of the business at the horizon, also discounted back to present value.
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(NPVR)(NPVR)= /
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(PI)(PI)= / (PI)=1+1
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Internal Rate of Return (IRR) ()NPV0Initial cost of a businessThe internal rate of return is the interest rate received for an investment consisting of payments (negative values) and income (positive values) that occur at regular periods. The rate of return calculated by IRR is the interest rate corresponding to a 0 (zero) net present value. ExcelIRRIRRIRR IRR
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Modified Internal Rate of Return (MIRR) A critical shortcoming of the IRR method is that it is commonly misunderstood to convey the actual annual profitability of an investment. However, this is not the case because intermediate cash flows are almost never reinvested at the project's IRR; and, therefore, the actual rate of return (akin to the one that would have been yielded by stocks or bank deposits) is almost certainly going to be lower. Accordingly, a new measure called Modified Internal Rate of Return (MIRR) is used.While the internal rate of return (IRR) assumes the cash flows from a project are reinvested at the IRR, the modified IRR assumes that all cash flows are reinvested at the firm's cost of capital. Therefore, MIRR more accurately reflects the profitability of a project. For example, say a 2-year project will cost $231 with a cost of capital of 12% and that it will return $110 in the first year and $121 in the second year. To find the IRR of the project so that the net present value (NPV) = 0:NPV = 0 = -195 + 110/(1+ IRR) + 121/(1 + IRR)2 NPV = 5 when IRR = 10% Solving for NPV using MIRR, we will replace the IRR with our MIRR = cost of capital of 12% :NPV = -195 + 110/(1+ .12) + 121/(1 + .12)2 NPV = -0.32 when MIRR = 12%Thus, using the IRR could result in a positive NPV (good project), but it could turn out to be a bad project (NPV is negative) if the MIRR were used. As a result, using MIRR versus IRR better reflects the value of a project.
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Pros and Cons of Internal Rate of Return (IRR):IRR
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Cost of Capital The cost of capital for a firm is a weighted sum of the cost of equity and the cost of debt. Firms finance their operations by three mechanisms: issuing stock (equity), issuing debt (borrowing from a bank is equivalent for this purpose) (those two is external financing), and reinvesting prior earnings (internal financing).weighted average cost of capital WACC. An average representing the expected return on all of a company's securities. Each source of capital, such as stocks, bonds, and other debt, is weighted in the calculation according to its prominence in the company's capital structure.
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Payback or Discounted Payback payback
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Accounting Rate of Return (ARR ) (accounting rate of return / return on capital expenditure / return on investment) ARR= / ARR=profit/capital outlay capital outlay may be the initial capital sum, or an annual average with or without the working capital. ARR is fundamentally flawed by not including the time value of money, and erroneous to use an accounting profit to discriminate between projects
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(ROI)Rate of Return on Investment (ROI) = Income from Operations / Invested Assets (ROI)=/100%
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Risk Adjusted Return on Capital (RAROC)Risk Adjusted Return on Capital (RAROC) In financial analysis, riskier projects and investments must be evaluated differently from their riskless counterparts. By discounting risky cash flows against less risky cash flows RAROC accounts for changes in the profile of the investment. In general, the higher the risk, the higher the return. Thus, when companies need to compare and contrast two different projects or investments, it is important to take into account these possibilities.
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()(PP)(PP)(PP)= /=+
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001=0=0=1=001
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XII.
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XII. Maintain the public companyCreate Market Awareness PRInvestor Relationship Raising money as a public company Keeping stock price up
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9.1 2590 1934
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SEC1934110K 310Q
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FormsW 1099 Form 10-K .Form 10-Q .Form 8-K ().Form 10-C 5%.Schedule 13 E-3 .Form 3 Form 4 Form 13-D 5%.Form 13-G 5%.
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9.2 Investor Relationship Management PR investor relationship department
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570%338Johnson Electric80%Hon Hai Precision70%
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9.3
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Private Investment in Public Equity (PIPE)200128PIPE7.59OTCBB14PIPE0.57 PIPEPIPE
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China BAK Battery (OTC BB:CBBT.OB)2005121China BAK Battery1700123 China BAK Battery raised $17 million by issuing 8.6 million common shares for $1.97 each when it completed its reverse merger in January, 2005Then in mid-September 2005, China BAK issued an additional 7.9 million common shares at $5.50 a share to raise $43.5 million. Magnetar Capital, a new hedge fund launched by the former principals at Citadel Investment Group which used to be the largest hedge fund in Chicago area. They now has $2 billion capital under their management. The company, which manufactures lithium ion batteries, was recently trading around $ 11.05 a share (Dec 29, 2005 ) Avg Vol (3m): 3,620.31
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Follow-on or Subsequent Offeringprivate placementpublic offeringIPOSECStand BySEC12.515IPO:Secondary Offering Rights offering ()
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private placementPIPE
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BB
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Secondary Offering (Secondary Offering)SECIPOSEC(Firm Commitment)(Best Effort)SEC154060
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Rights offeringoptionsexerciseoptionsRights offering(Rights offering)Rights offering ( Offering of common stock to investors who currently hold shares which entitle them to buy subsequent issues at a discount from the offering price.
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Public offering The making available of a new securities issue to the public through an underwriting. also called public offering. Seasoned Public Offering Subsequent offering An offering of shares after a company's initial public offering. also called follow-on. Primary offering The original sale of a company's securities, in which the proceeds from the sale are received directly by the company. also called primary distribution. Secondary offering A registered offering of a large block of a security which has been previously issued to the public, by a current shareholder. The proceeds of the sale go to the holder, not the issuing company, and the number of shares outstanding does not change. also called secondary distribution. Rights offering ( Offering of common stock to investors who currently hold shares which entitle them to buy subsequent issues at a discount from the offering price.Direct placement Offering performed without an underwriter; usually exempt from SEC filing. Intrastate offering An over-the-counter securities offering limited to investors residing within one specific state, often done to avoid SEC registration requirements.
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9.4 (Fundamentalist)(Technical Analysis) (Tape Reading)
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Tank you!Walter Huang Tel: 1391-800-2882 China 847-323-7226 US [email protected]
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http://www.petrochina.com.cn/chinese/index.htmBasic principle of finance:
A dollar today is worth more than a dollar tomorrow.A safer dollar is worth more than a risky one.Free Cash Flow
Free Cash Flow for the Firm (FCFF)
Free Cash Flow per Share +-
Free cash flow
Free cashflow is calculated as EBITDA (earnings before interest, taxes, depreciation and amortization) minus taxes paid during the year, minus capital expenditures, and plus or minus changes in working capital. See also cashflow and operating cashflow.
Operating cashflow
Operating cashflow is net income plus depreciation and amortization expenses, plus future income tax expense, and plus or minus changes in working capital.
Working capital
Current assets minus current liabilities. This reflects the company's ability to cover its short term debts.
Current assets
These are assets which are expected to be either consumed or converted to cash within one year, or are able to be readily converted to cash. Examples are accounts receivable, inventories, short term investments, and prepaid expenses such as insurance.
Current liabilities
These are debts which are due to be paid within one year, such as accounts payable, accrued liabilities, and the portion of long term debt which is due within 1 year.
Net income
The part of income remaining after all expenses and taxes have been paid. Also called net profit.
Amortization
Amortization is the gradual expensing of an asset over a number of years, instead of expensing it in the year of purchase. Usually relates to intangible assets such as goodwill. Depreciation is the term used for amortization of a fixed asset.
Amortization is also the term used when a loan is being repaid over time. The amortization schedule is a document which shows the payment dates, payment amount, interest and principal portion of each payment, and the balance of the loan after each payment, until the balance reaches zero.
IRR
Returns the internal rate of return for a series of cash flows represented by the numbers in values. These cash flows do not have to be even, as they would be for an annuity. However, the cash flows must occur at regular intervals, such as monthly or annually. The internal rate of return is the interest rate received for an investment consisting of payments (negative values) and income (positive values) that occur at regular periods.
Syntax
IRR(values,guess)
Values is an array or a reference to cells that contain numbers for which you want to calculate the internal rate of return.
Values must contain at least one positive value and one negative value to calculate the internal rate of return.
IRR uses the order of values to interpret the order of cash flows. Be sure to enter your payment and income values in the sequence you want.
If an array or reference argument contains text, logical values, or empty cells, those values are ignored.
Guess is a number that you guess is close to the result of IRR.
Microsoft Excel uses an iterative technique for calculating IRR. Starting with guess, IRR cycles through the calculation until the result is accurate within 0.00001 percent. If IRR can't find a result that works after 20 tries, the #NUM! error value is returned.
In most cases you do not need to provide guess for the IRR calculation. If guess is omitted, it is assumed to be 0.1 (10 percent).
If IRR gives the #NUM! error value, or if the result is not close to what you expected, try again with a different value for guess.
Remarks
IRR is closely related to NPV, the net present value function. The rate of return calculated by IRR is the interest rate corresponding to a 0 (zero) net present value. The following formula demonstrates how NPV and IRR are related:
NPV(IRR(B1:B6),B1:B6) equals 3.60E-08 [Within the accuracy of the IRR calculation, the value 3.60E-08 is effectively 0 (zero).]
The Internal Rate of Return (IRR) is the discount rate that results in a net present value of zero for a series of future cash flows. It is an Discounted Cash Flow (DCF) approach to valuation and investing just as Net Present Value (NPV). Both IRR and NPV are widely used to decide which investments to undertake and which investments not to make. The major difference is that while Net Present Value is expressed in monetary units (Euro's or Dollars for example), the IRR is the true interest yield expected from an investment expressed as a percentage.
Internal Rate of Return is the flip side of Net Present Value and is based on the same principles and the same math. NPV shows the value of a stream of future cash flows discounted back to the present by some percentage that represents the minimum desired rate of return, often your company's cost of capital.
IRR, on the other hand, computes a break-even rate of return. It shows the discount rate below which an investment results in a positive NPV (and should be made) and above which an investment results in a negative NPV (and should be avoided). It's the break-even discount rate, the rate at which the value of cash outflows equals the value of cash inflows. Many people find the percentages of IRR easier to understand than Net Present Value. Another benefit from IRR is that it can be calculated without having to estimate the (absolute) cost of capital. When IRR is used, the usual approach is to select the projects whose IRR exceeds the cost of capital (often called hurdle rate when used in the IRR context). This may seem simple and straightforward at first sight. However a major disadvantage of using the Internal Rate of Return instead of Net Present Value is that if managers focus on maximizing IRR and not NPV, there is a significant risk in companies where the return on investment is greater than the Weighted Average Cost of Capital (WACC) that managers will not invest in projects expected to earn greater than the WACC, but less than the return on existing assets. IRR is a true indication of a project's annual return of investment only when the project generates no interim cash flows - or when those interim investments can be invested at the actual IRR.
The aim of the value-oriented manager should be to invest in any project that has a positive NPV! If IRR usage is unavoidable, then managers are advised to use so called Modified IRR (which, while not perfect, at least allows to set more realistic interim reinvestment rates) and additionally to keep a close look on interim cash-flows, especially if they are biased to the beginning of the project period (the distortion is bigger then).
In other words: the aim should not be to maximize the Internal Rate of Return, but to maximize Net Present Value.
Book: Aswath Damodaran - Investment Valuation: Tools and Techniques for Determining the Value of Any Asset - Search at Amazon
Book: James R. Hitchner - Financial Valuation: Applications and Models - Search at Amazon
Book: Steven M. Bragg - Business Ratios and Formulas : A Comprehensive Guide - Search at AmazonCost of Capital The opportunity cost of an investment; that is, the rate of return that a company would otherwise be able to earn at the same risk level as the investment that has been selected. For example, when an investor purchases stock in a company, he/she expects to see a return on that investment. Since the individual expects to get back more than his/her initial investment, the cost of capital is equal to this return that the investor receives, or the money that the company misses out on by selling its stock. weighted average cost of capital WACC.An average representing the expected return on all of a company's securities. Each source of capital, such as stocks, bonds, and other debt, is weighted in the calculation according to its prominence in the company's capital structure.
http://en.wikipedia.org/wiki/Cost_of_capital Magnetar Capital, the massive startup launched by a former principal at Citadel Investment Group, will engage in direct lending when it launches its fund this fall. Magnetar is run by Alec Litkowski from Citadel and Ross Laser, formerly president of Glenwood Capital Management, and expects to launch with $2 billion (AIN, 6/27).