Growth Of Private Enterprises Financing Strategies

Nongovernmental business is an indispensable part of socialist market economy and it has displayed great vigor and gained momentum .The 15th National Conference of Communist Party of China attaches great importance to the development of the nongovernmental business. The nongovernmental enterprises should take advantage of this unprecedented opportunity to grow in size and scale by means of financing and fund-raising.The feasible access to fund-raising comprises bank loan, government financing, equity financing, project financing, risk financing, immaterial asset financing, listing, asset restructuring, etc.An enterprise has to make a decision as to the exact means of financing to raise fund in light of following factors.(1) The enterprise's history and scale.Enterprises in IT industry tend to raise fund through risk financing which has turned out successful .As a result, a lot of enterprises grow rapidly. Equity financing, in addition to raising fund directly, can select its cooperator in an attempt to bring the strength of each enterprise into full play as well as make up each other' deficiency.(2) The business line and characteristics of the enterpriseGovernment financial aid, project financing, immaterial financing are possible fund-raising methods.Government financial aid is not easily obtainable. It may be free subsidy or low interest loan.Project financing is not widely used. But once successful, it will lead to the doubling-up of capital and scale of enterprises.Immaterial financing is characterized of low input, great utility. However, the enterprise has to strive hard consistently to maintain a reputable brand.(3) Fund-raising in the stock marketIf the nongovernmental enterprise can be listed in the stock market, it will gain a privilege in raising fund through issuing common shares and reissuing common shares or bank loan. But not all-nongovernmental enterprise can meet the strict criteria and go through the complicated procedure before it is approved to issue shares in the stock market. However, in addition to being listed in the stock market, there are other indirect ways of raising fund through stock market. Roughly speaking, nongovernmental enterprises have more initiative and creativity in seeking a target listed corporation in the stock market and gain the control of it. Thus the dominating enterprise can raise fund in stock market through the corporation dominated. This can be operated in the following five ways.(i)Purchasing sufficient shares of target corporation to become it majority shareholder.(ii)Purchasing shares of the target corporation and exchange of share equity with the target corporation(iii)Indirect holding of the target corporation. The dominating enterprise and its cooperators set up with their assets and equity a holding company though which the target corporation listed can be indirectly controlled.(iv)Joint indirect holding of the target corporation: More than two enterprises jointly set up a holding company to control the target corporation listed.(v)If holding is not feasible, alternatively, the nongovernmental enterprise can seek a listed corporation to hold a certain number of its shares, becoming its majority shareholders or non-majority shareholder, which can result in possible financing of both companies. But not all asset-restructuring operations are successful. There are a lot of cases of failure, which results in the deterioration of the capital formation and financial situation. An enterprise must take overall situation into consideration before it makes a decision of raising fund through any share-holding concerned asset restructuring operation.