A Study On The Behavior Of Private Placement's Tunneling And Effect

With the reform of equity division,private equity placements have gradually become the mainstream method adopted by listed companies' refinancing.Meanwhile,private equity placements even have occupied the mainstream status since the official release of Administrative Measurement for Listed Companies' Securities Issuance on May 8,2006 by virtue of its merits of low cost and convenient financing mode,which also provided convenient financing conditions for the development of China's listed companies.However,do private equity placements,as the financing mode highly expected by market and supervision parties,really achieve common interest between strong and minority shareholders? Whether there is behavior of Tunneling to strong shareholders due to information dissymmetry? If there is problem of Tunneling that lasts for a long time,it is unable to guarantee minority shareholders' interests,which will ultimately impact minority shareholders' confidence in private equity placements and securities market.The reason why this article selects Zhonghong Stocks as research object is because that,firstly,Zhonghong Stocks carried out three times of private equity placements during 2009-2015,which was so frequent.Secondly,the objects of first private equity placements were strong shareholders and organizational investors,while the objects in the second and third private equity placements merely were organizational investors.Therefore,to compare the differences among these three times of private equity placements will help research whether there is hidden Tunneling under corporate private equity placements.Based on the case of Zhonghong Stocks' private equity placements,this article analyzes the object,motivation and market performance of private equity placements,along with the economic consequences caused by it.It is found that Zhonghong Stocks' private equity placements indeed have the behaviors of utilizing lower pricing options,below par issuance to strong shareholders,and underselling shares held by strong shareholders after relieving restriction on sales for Tunneling.As for Zhonghong Stocks,private equity placements,on the one hand,can indeed bring great help to corporate business development and strategic transformation,and it also strengthens Zhonghong Stocks' profitability to a certain extent.However,on the other hand,because of market speculation,there is still the possibility of Tunneling to stronger shareholders in private equity placements,which undoubtedly is unfavorable to company's share price with causing some losses to minority shareholders.During the process of private equity placements,Zhonghong Stocks manipulated the pricing opportunity,repeatedly implemented money encirclement by using cash dividends,reduced holding shares for cash,and injecting assets,and completed Tunneling to corporate controlling shareholders,which resulted in profit losses to organizations and minority investments.This article believes that the key to solve the above problems is that relevant regulators shall supervise the manipulation of private equity placements' prices,standardize the method for determining conversion ratio,define the standards for defining market manipulation,and developing specific regulations on corporate information disclosure and governance.Moreover,the government needs to takes advantages of private equity placements to vitalize enterprises while preventing Tunneling in private equity placements.