Controlling Stake、Private Benefits Of Control And Private Placement

Split share structure reform of China’s securities market promoted circulation times, in addition to the formal implementation of management measures of the listed company securities issuance, in the context of two major themes, private placement has become the high-profile focus in the Chinese stock market, with gradually becoming the mainstream way of refinancing to listed companies. Compared with the traditional way of refinancing, private placement has following advantages, simplified process of issue approval, the issue of low-cost, decrease of the related transactions, unlimited profitability before the placing, less requirements for information disclosure etc. However, the controlling shareholders in the shareholding structure of Chinese listed companies occupy dominant position, the agency contradictions between large and small shareholders, and information asymmetry theory exists, in these cases, many links of private placement participated by the controlling shareholders have become attentional focus in the securities market. In following series of links, such as the pricing schemes resolution link of private placement, the double related transactions of introducing the controlling shareholders’ assets, the dividend distribution program after the private placement etc. Whether exists the phenomenon of low subscribe for shares by skillfully choosing the pricing benchmark day, whether the assets introduced by controlling shareholders are quality or not, whether overestimate injected assets for more shares in order to achieve the motive of transporting self-interest to themselves, whether it is reasonable to distribute high-dividend in the lock-up period etc. In order to solve these doubts, this paper aims to study and analyze the problems of occupation of minority shareholders’ interests in the process of private placement with the perspective of the controlling shareholders’ motives to obtain their private interests through the private placement.This paper is divided into two aspects, the theoretical analysis and case study. Theoretical part consists of shareholding structure theory, agency theory between lager and small shareholders, information asymmetry theory, interest coordination and transportation theory combining with present situation of private placement. The current ownership structure of listed companies provides internal conditions for the behavior gaining private interests of controlling shareholder. This part mainly analyzes that the controlling shareholders exists the opportunities and motives of transferring self-interests by varies of channels in the private placement for the controlling shareholder.In the case analysis section, the author respectively analyzes following three cases, the listed company Zhong Jin Huang Jin implemented different price with same shocks for different issue objects by skillfully selecting the pricing benchmark day, the Yi Li Energy overestimated value of injected assets by twice private placements, and the listed company Chi Hong Xin Zhe distributed high-dividends in the year of finishing the private placement, and reveals the absence of effective check and balance for act of the controlling shareholders in the internal equity structure of listed companies and the controlling shareholder’s motives and behavior of transferring private interests through plentiful dominant and recessive means in the overall process of the private placement. What’s more, this has further reduced the degree of internal check and balance of the equity of listed companies.This paper comes to the following conclusions:(1) Internal equity structure of listed companies in China is the lack of effective check and balance on the largest shareholder, and this provides internal conditions for the motivation and behavior of controlling shareholders of the listed company to obtain their private interests.(2)Major shareholders of listed companies which have implemented private placement holding dominant position obtain their private interests by virtue of a controlling stake, and encroach the interests of the other shareholders who don’t subscribe or haven’t right to participate the private placement.(3)Some links have been used by controlling shareholders. Such as, the choice of the pricing benchmark day, the assessment of the quality and value of assets injected, as well as the company’s dividend distribution after the private placement etc.(4) The level of discount to institutional investors is less than the level of discount to the controlling shareholder in the private placement.(5) The check and balance of company’s internal equity structure has been further weakened by controlling shareholders of listed companies after subscribing for shares.Combining with the implementation situation of the domestic private placement and problems, corresponding recommendations are proposed:(1) Continue to deepen the share reform to promote the mutual checks and balance of the shareholding structure of listed companies.(2) Strengthen supervision of the private placement process. Make more detailed provisions about selection of object、determination of pricing base date, assessment of quality and value of the asset injected, and performance evaluation after the issuance etc.(3) Establish and improve the protection mechanism on interests of small shareholders. Improve the compensation mechanisms and strengthen information disclosure.The innovations of this paper include:Firstly, article topics and research point of view. According to the motivation obtaining private interests of controlling shareholder of the listed company through private placement, study concerning the internal link of controlling stake, control over private interests and private placement has certain value. What’s more, research perspectives are hot issues about the private placement. Secondly, the selection and analysis of cases. Cases with clear characteristics are typical. The research adopts comparative analysis and provides ample evidences. Finally, The paper puts forward referable and constructive suggestions for different market players.Due to the limitations of research methods and length, the paper exists shortcomings about the sample size and the universality of study. Conclusions will be confirmed by follow-up further study. Meanwhile, the policy proposals need to experience further inspection of securities market to gradually improve and refine.