| The emerging of private conglomerate is an important phenomenon in China's capital market. There are two competing hypotheses regarding the function of conglomerates. Some scholars argue that the controlling shareholder of conglomerate expropriates minority shareholders with related party transactions, and make profit with insider trading. Other scholars argue that conglomerate provides enterprise a new opportunity of obtaining synergetic advantage and a new mode of financing. Jin Xin is a big private financial conglomerate. This paper tries to distinguish the above two hypotheses with Jin Xin's case. The establishment and the organizational structure of Jin Xin conglomerate were reviewed. Based on this general description, this paper focuse on the reason for the emerging of Jin Xin conglomerate, and some features of its capital operation. The new characteristics of Jin Xin's operation were also introduced.This paper finds that Jin Xin obtained control rights of several listed firms by acquiring the non-negotiable state-owned shares at a relatively low price. Jin Xin forms a complicated conglomerate with these firms. The listed companies hold by Jin Xin have some common characteristics. First, the ownership is dispersed. This makes it easy for Jin Xin to get the control rights of these firms with small investments. Second, these firms are highly profitable and financially flexible. This provides opportunity for Jin Xin to finance from the capital market. Third, these firms have comparatively lower P/E, which leaves room for the rise of the stock price. Jin Xin raised a large amount of cash through rights issue, bank loans, and related party loan guarantees. At the same time, Jin Xin transferred assets to the controlling shareholder with cash dividends, consigning investments, and asset transactions. The conglomerate also makes great profits with insider trading. Recently, Jin Xin has begun to get involved in the MBO of some listed firms, and real estate trust operations. |
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