The Timing Of Private Placement And Its Economic Consequences

Since the beginning of China’s non-tradable shares reform in 2006, private placement has gradually become the main way of equity refinance of listed company. Due to China’s bond market is not mature enough, and the legal system of private placement is still incomplete, it is common to see a phenomenon that the interests of small and medium-sized investors was encroached by the timing of private placement of listed companies. Therefore, it is worthy to study the influence between the timing of private placement and its economic consequences. At present, the empirical research of private placement is much more than the case study of private placement both in the domestic and overseas.In this paper, from the point of view of case study, and based on existing research, we will analysis the status of private placement in China. Based on the comparison between two typical cases, the conclusion can be reached that the relationship between the timing of private placement and its economic consequences of listed companies. Two cases were selected to be studied in this paper of listed companies in China which were refunded through private placement, to study the different timing of private placement could bring different economic consequences. One of the consequences is negative while Another is positive. These two companies are Chihong Zinc and Germanium and Shandong Gold. In this paper, firstly, it is illustrated that large shareholders may transfer benefits to themselves or emptied the listed companies by private placement though providing large shareholders shares at large discounts. Secondly, when the buyers are institutional investors,there will be varying degrees of premium, for the company is willing to protect the interests of the large shareholders of the original and ensure a planned project financing.Based on the comparison of Chihong Zinc and Germanium and Shandong Gold, it is discussed what should be pay attention to in private placement. Therefore the study of theselected two cases of private placement of Chihong Zinc and Germanium and Shandong Gold is very special and significant.Currently, in the capital market of our country’s, private placement is an important system innovation which was expected to solve many problems by market and regulators,such as promoting financing, coordinating large shareholders’ and minority shareholders’ interests, and so on, and that has become the common way of refinancing in China’s capital market. In the analysis of the case Chihong Zinc and Germanium, it is found that the interests was transported for the large shareholders through selecting the timing of private placement due to the institutional background of China and imperfect regulatory measures.During the process of private placement, the large shareholder of the company managers can only on behalf of the interests of part of shareholders, then large shareholders tend to established rules in their favor, which means the fairness of pricing is difficult to guarantee,while the system in China cannot avoid it. However, in such a policy background and market environment as well as the analysis of the case of Shandong Gold, introduction of private placement, on the whole still reflects the positive role, especially large shareholders inject quality assets to eliminate competition, and listed companies introducing strategic investors and institutional investors to improve management and performance, for the capital market’s long-term development has important significance. Of course, the cases of Chihong Zinc and Germanium can not denied private placement on the whole, just for the improvement of regulatory policies and provide some inspiration and reference to private placement.