The Object And Objective Of Directional Private Placement

Recent years, with the rapid development of China capital market, not only the amount but also the size of public companies are rapidly increasing and expanding, so that the demand of refinancing is gradually increasing, especially equity refinancing. As one of the major mode of refinancing, with the advantages of low cost and high speed, more and more public companies choose this way to refinance, especially after 2006, with the success of equity division reform, at that time, china securities market began to revive and the success of equity division reform creates favorable conditions for the promotion of directional private placement. By this way, public enterprises can introduce strategic investors to adjust the equity structure of the company and improve the condition of corporate governance; realize group listed as a whole by purchasing assets and make full use of the resources of enterprises; financing for the high quality project and increase profitability. Above all, this type of refinancing can promote the rapid, healthy development of enterprises, the interests of big and other shareholders can be aligned. However, the laws and regulations are not perfect, especially the conditions of directional private placement are loose and the phenomenon of highly concentrated ownership is very common in china capital market, the big shareholders can dominate this activity, the problem of the big shareholders against the interests of other shareholders usually appear when the objects of directional private placement are original big shareholders and their related parties, directional private placement are used as the tool to transfer interests by big shareholders. Since public companies can not only coordinate the interests of all shareholders but also infringement the interests of small shareholders by directional private placement, what is the important reason? By researching the related articles, I think the object of directional private placement may be the important reason. So in this article, I will focus on whether the company will have the same objective when its directional private placement object is different.This article is a study based on the case of Fangda Carbon New Material Co.,Led that conducted two directional private placements in 2007 and 2013, the objects of the two placements are big shareholders and institutional investors. We use this case to prove the conclusion that companies may have different objectives when their objects of directional private placement are not the same, and then I will find out the theoretical and the system origins. Firstly, I review the related literature at home and abroad on equity refinancing and directional private placement and find out the related theory to support this study; Secondly, I will have a brief introduction about this company and then analysis the condition of the two directional private placement in detail, I will prove the conclusion by the way of comparative analysis of the market reaction and the degree of discount or premium of the placement, at the same time, I will provide more proof for the conclusion of this paper by estimating the value of injected assets, studying the type of directional private placement, analysing the quality of financial indicators and so on; After that, on the basis of this case study, I will further search the system background and the theory root of this phenomenon. Finally, I will point out the conclusion and inspiration.By the case study, I conclude that Fangda Carbon may convey benefits to big shareholders in the directional private placement in 2007, high discount, bad market reaction, overestimate the value of the assets, lock the pricing benchmark day in a period of relatively low time, all of these prove the conclusion; But when the objects of directional private placement are institutional investors, high premium, good market reaction, improved financial indicators, cash placement, all of these offer the evidence to the conclusion that the interests of all shareholders are increased. Since this study can provide some ideas to other studies, the conclusion may not apply to all cases, when the condition is different, we should analyze problems on the basis of concrete circumstances.According to this case, I realize that the essence of directional private placement is a “double-edged sword”, only when the laws and regulations are sound and supervision is in place can this refinancing play its due role. So I advise that the regulatory authorities should raise the standard of directional private placement, partial supervision is necessary when the objects are different, clearly define the pricing benchmark; strengthen the duty of recommendation institutions and improve the transparency of the process of this event, in this way, the interests of all parties can be protected.