A Research On Equity Carve-outs

Equity carve-outs, as one way of the shrinkage recombination, have reached its maturity in foreign capital market-no matter in regulation construction or in supervision management. Equity carve-outs rationalized the division of parent company and its subsidiaries,coordinated the structure of products and received favorable market responses. Based on Chinese special economic background, the CSRC allowed domestic listed companies which met 6 conditions to carve-out subsidiaries on GEM until 2010, which suggested the beginning of equity carve-outs on the mainland. However, as CSRC’s attitude changed from “allowing” to “not encourage” and later to “strictly approval”, companies which wanted to carve-out became more prudent. Which capital market is the best for the domestic listed companies to carve out, GEM, HK market, or other foreign market? The essay suggested that firstly the companies should have a general understanding on the characteristics and requirements of equity carve-outs in different capital market. Then they should take their own development strategies, operating management and capital operations into consideration. At last, they could make the most appropriate choice for the companies’ future development.The essay used the method of theoretic research and case study, taking GEM and Hong Kong market as research object. Firstly, we compared the listing condition of equity carve-outs between the two markets, finding out their own specialties. Then, we chose Jolly carved out on GEM and Technovator carved out on HKEx as cases, separately compared their carve-out motivation and the performance after IPO from two aspects-financial indicators and stock price. With respect to the financial indicators, we made a trend comparison with debt paying ability, operating ability, profitability and development capacity. With respect to stock price, we analyzed the stock price’s trend for both the parent companies and its subsidiaries. Finally, the essay summarized the similarities and differences between GEM and HK market, as well as their advantages and disadvantages. Only if the companies had a general understanding of their own characteristics and demands, can they make the right decision for future development.