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Listed company non-public offering pricing constraint mechanism

Author: HuangJianZhong From: www.yourpaper.net Posted: 2009-03-30 16:18:44 Read:
summary of : private placement of additional shares China's securities market norms refinancing has become one of the mainstream channels listed companies to raise funds. The issue of pricing is a core part of the private placement process, but also the urgent need to standardize and correction new topic. From the typical case, each company in the pricing benchmark alternative take on "flourishing", a direct impact on the practices of the private placement, resulting in as private pricing constraint "10% rule" failure, and financing of the Board of Directors (pricing discretion and the issue of right to object selection) is too large, and provides an opportunity for a wide range of rent-seeking behavior of their transfer of benefits, and induce price manipulation risks. Therefore, in order to protect the interests of minority shareholders to prevent rent-seeking behavior, the need to strengthen the supervision of the private placement and pricing constraints.
Keywords: private placement; pricing; reference date; financing rights; gifts
I. Introduction
According to WIND IT statistics, to November 23, 2006, there are 186 companies implemented or proposed private placement program, accounting for more than 85% of all the proposed financing of listed companies, with a total planned financing scale of about 220 billion yuan, far exceeding the China's listed companies in 2003 and 2004 to refinance the size of the sum of 77.68 billion yuan. Among these, the private placement pricing refinancing core areas, but also should be standardized and quite value to explore a new topic.
pricing benchmark with private discount rate: A Case Study
The success or failure of the investment banking business, the issue of pricing has always been offering the core elements of the program, the global challenges of the securities market, directly related to the efficiency of the public offering of shares (as little stock as possible to raise the amount of funding needed) and equity issuances itself , but also to ensure that the key points of the stock issue of fairness and justice. At the operational level, the offering price of the IPO project involved is the valuation of the company Inquiry; refinancing of listed companies (placements, issuance, bonds, etc.), the stock issue price is usually linked to the market price (ie market-oriented pricing ), the pricing of new shares actually evolved into the pricing basis to determine the date and price of the choice of the discount rate.
It is worth noting that the refinancing of Article 13 of the Measures on the public issuance of the issue price shall not be less than 20 trading days before the prospectus announcement stock price or the average price of the previous trading day "provisions, The clear public offering additional pricing base date for the prospectus announcement. But for the private placement discount constraints are relatively loose, the relevant provisions in Article 38 only "issue price of not less than the pricing benchmark 90 per cent of the company's stock price 20 trading days prior" (referred to in this article "10% rule"), the non-public offering pricing benchmark and not clearly defined.
From the existing cases, related companies choose to take can be described as a wide range of private placement pricing basis: (1) the use of the most relevant board (conventional, Board deliberations additional matters at least twice or even a number of meetings, first board meeting to agree on additional programs last board meeting before the issue to determine the specific additional implementation issues, this article the former is referred to as the relevant board, which referred to the issue before the Board) the announcement of the resolution, such as CITIC G, G Bao titanium, G Vanke; (2) Board Meeting, such as the G Wolong; (3) The general meeting of shareholders, such as G the BOE, G Benxi Iron and Steel. G Benxi Iron and private placement started in refinancing Measures before the promulgation of additional pricing principles for the 20 trading days prior to the general meeting of the shareholders of the Company, the arithmetic mean of the closing price of the Company's A shares with the company in December 31, 2005 audited the net asset value per share of the higher value, the implementation of the price of a 05 year-end net asset value per share; (4) Shareholders' General Meeting announcement, such as G Changli; (5) before the release of the Board of Directors held, such as the new and old draw off the "and refinance shares - G Hypermarket; (6) Other. G Luxi, G Hongchi.
According to "China Securities Journal" Information Data Center statistics, as of September 18, 2006, has completed the private placement company 17 base date of 10 offering price and its discount rate shown in Table 1.
In addition to the proliferation of pricing benchmark, closely related to the private placement pricing the stock suspension and the average benchmark price choose to take a period of time, each company's practices are not the same. For example, September 14 the private placement G Baoti, the provisions of the general meeting of its shareholders to vote on the pricing reference to the average price of the pricing benchmark May 9 ten (rather than refinancing Measures twenty) trading day 105% of the company's stock price; vast majority of companies in the relevant Board held 1 day suspension due to significant events have not announced to the issuance of the implementation of the day the vast majority of the implementation of the suspension in the Approved announcement of the additional, exceptional cases, such as G national security, approved by the Commission, on August 9 (allowed announcement date) to implement a suspension on the stock, to August 21 additional after resumption.

Note: This table by the author in accordance with the relevant companies in Shenzhen and Shanghai Stock Exchange Notice and its stock price data are compiled.

Third, the "10% rule" failure and low-cost additional harm
The features of the issue of shares, non-public offering is a listed company in the process of financing a specific object within 10 "special treatment", and the other investors, especially small investors excluded offering. As a result, the "natural" easy to breed financing Object option to rent-seeking and to specific objects below the fair price of the issue of shares to transfer benefits.
The case of a private placement of its major shareholders in listed companies, especially the value of private equity shares at a lower price, attention. In accordance with the "10% rule", additional pricing shall be based on the price the day before the stock price of the Company, which will lead to alternative price manipulation, the largest shareholder of listed companies controlled by private placement, deliberately hidden profits, the release of bad news , teamed up making Zapan the excuse to share reform or acquisitions restructuring and long-suspension price pressure, in order to significantly reduce the cost of holding additional object, to achieve the purpose of directed issue of shares at a low price to related shareholders.
From a legal perspective, the "10% rule" was originally meant to prevent private placement of underpricing, protect existing shareholders, especially minority shareholders' interests. However, due to the pricing benchmark freely choose to take practice, so that the rule of law the seriousness and pricing binding greatly reduced or even non-existent, leading to the failure of the "10% rule". As a result, the private placement discount rate uneven or even very different individual issue price significantly higher discount company, but also far more than the "10% rule" constraint price, affect the issuance of pricing fairness and fairness, but also to a wide range of interests of the transport behavior provides an opportunity.
See from Table 1, the the minimum constraint price and the market price of the ten typical cases than the average of only 69.27%, far lower than 10%, the average ratio of the issue price and the market price of only 80.74%, highlighting the practice "10% regulatory failure "is more serious. Assuming 12 months after the company's share price remained unchanged or rose (usually a given organization is optimistic about the company's future to subscribe for additional shares), the private placement of many companies there are a few specific object low-risk or no risk of lucrative investment opportunities, but this investment opportunity is no chance to meddle in the medium and small investors. Whereby non-public offering the pricing specific object option may also bring "rent" to some people, making it the tool the right seeking or transfer of benefits.
financing right border of the Board and private rent-seeking
It is noteworthy that, in the "10% rule failure" private practice pricing in the regulation of the market "vacuum" in many cases, is not conducive to the protection of the rights of the small and medium investors. From the existing cases, in addition to the very few companies in advance to identify and announcement of the issue price (Chihong), the vast majority of companies in the announcement of a resolution of the general meeting table clear just refinancing Measures scripted style pricing principles and price range (such as minimum issuance price), and even many companies do not want it is easy to measure the minimum price announcement express additional object only announcement did not disclose the specific principles unit name (even those who are already default offering a targeted company), which led to the vast majority of companies in the shareholders' meeting and subsequent consideration of the issuance examination committee voting process, the issue price and the issue of objects are not finalized matters, did not reveal the issue of underpricing and other issues. Significantly lower issue price, and only after the approval of the SFC, listed companies to publish "somewhere" in the private placement only the implementation of the bulletin. Until the time of disclosure of relevant information, regardless of the implementation of the private placement price of how outrageous, how obvious the problem of transfer of benefits, the issue is already a done deal, not to mention the seemingly outrageous discount rate, almost all can take new shares in existence Lock period to do a "shield".
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