A Case Study On The Private Placement Of JG Company

Since the non-tradable shares reformation in May 2006,private placement has being ruledand also become popular in capital market.To listed company,private placement has the advantage of low threshold and high flexibility.To investors,private placement is news of higher stock price,so investors could be more highly participated in the market.However,different from theoretical prediction and market practice,capital market showed a negative reaction of the private placement of JG.For this,JG changed the private placement plan several times.Although JG finally raised money successfully,capital market still held a pessimistic opinion.JG Company was selected as the study object of this article.From the reaction of the market,this article analyzed all direct reasons of the unusual reaction of market reaction.Based on the hypothesis that capital market is effective,the judgement of market investors should be rational and effective.Therefore,In order to restore investors' judgement of JG Company's private placement,this paper further analyzes the possible motivation behind JG Company 's private placement and its continuous modification plan.And draw inspiration from it.The main contents of this article is as follow.Firstly,through event method,this article found out that market reaction to JG private placement is pessimistic,including the announcement effect of the first pre-arranged planning and implementation of private placement.Secondly,through the direct reasons of pessimistic market reaction,When the project was announced by the board,the main reasons of the pessimism are high risk of investment,high risk of the reformation strategy failure,the unreasonability of the private placement plan.However,in the market background of changing market,the main reasons of the pessimism are continuous deficit of invested projects,frequently changes of the capital usage,and the declined scale of affiliated person.From the above analysis,investors have already seen through the real motivation of JG private placement.Thirdly,tracing the motivation of this private placement and changing the project plan continuously,JG intended to find new strategic model because of the decline of profitability,transfer high market price to real assets by using opportunity windows due to high price issue,suppress its competitors utilizing “money-burning” strategy and use the “time gap” before new rules and collected more money in the name of private placement.The above showed that JG had the possibility of over-invest and over-financing.Obviously,this could hurt profit of not only listed company but also investors,especially minority shareholders.This was the reason of pessimistic market.Finally,based on all the analysis above,this article proposed proposals for new private placement rules,related regulator,investors and listed company.For listed companies,they should focus on profitability,avoiding over-invest and adjusting their own operating decisions based on market reaction.For investors,they should be alerted to investing projects on popular concept.Investors should make reasonable invest decisions on market information and participate in the motivation of invest projects proactively.For regulators,they should strengthen verification beforehand,information disclosure halfway and supervision and punish mechanism afterward.All these can help policies to be more stable,then offering market could be improved and investor's benefit could be protected.