Study On The Case Of Chenming Company's Preferred Stock Financing

Preferred stock is always an important tool for international investment and financing.In the western developed countries,preferred stock financing has been widely used for a long time.In many countries,the laws and regulations on preferred stock are quite complete.The experience of developed countries shows that preference shares play a positive and effective role in different periods.During recession,preferred stock offers more benefits to the securities market,companies and investors than ordinary shares.Compared with developed countries,China started late on using preferred shares.In order to keep pace with International tendency and to solve problems of “ high leverage” on domestic corporations,the State Council issued the “Guiding Opinions of launching Trial Implementation on Preferred Shares” on November 30 th,2013.China Securities Regulatory Commission issued the “Management of Trial Implementation on Preferred Shares " on March 21 st,2014.The publishment of these two important documents marking China's using of preferred stock and work of promotion on it officially opened.The implementation of using preferred stock increases the ways of financing domestically.Chenming Company implements the policy of preferred stock,which not only opens up a new way against the single financing way of corporations,but also achieves the goal of deleveraging to some extent.And this provides practical experience and valuable example for other corporations.This paper summarizes scholars' studies on preferred stock by referring to related theories and concepts of preferred stock financing.And it researches the preferred stock financing by using case study,qualitative analysis,comparative analysis and the analytic approach of the incident.First,this paper employs qualitative analysis method to analyze the basic situation and reasons for preferred share financing in Chenming Company;second,analyzing the main terms,process,targets and results of the preferred share financing;again,exploring financing results with using the positive and the negative effects of its financing methods;last,making conclusions and obtaining inspirations from these cases studies.Through the study of Chenming case,we found that the preferred stocks issued ensure the stability of corporate control right and improve enterprises' solvency.It improves the structure of capital and reduces the cost of financing.It also gives financial support to project construction and improves short-term investment value in capital market.Meanwhile,we alsofound that the preferred stocks implemented in Chenming Company narrows the allocation space of profits for common shareholders.Once they breach the contract by not paying dividends,preferred stockholders have the voting rights again.So,the voting rights for common shareholders might be diluted.This article aims at the case of Chenming Company's preferred stock issue to draw a conclusion for similar cases and get inspiration for government and corporate sectors.For example,should enterprises issue preferred stocks? How to control the scale and set dividend yield? As well as how to ensure and maintain profit level? The ensurance of the allocation space of profits for common stockholders is a guarantee for issuing preferred stock.The government should strengthen the perfection of various systems related to preferred stock,so that other companies in China can gain experience and policy safeguard when they're trying to issue preferred stocks.What's more,this helps to promote the diversification of financing modes.