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NUR HIDAYAH BINTI JIDIN
NURULAIN BINTI AHMAD PAJAR
SITI AFIQAH BINTI DAJULI
for PN ZURAIDAH SIPON PN. ZURAIDAH SIPON China Mobile (Hong Kong) Ltd. Is a Hong Kong-based provider of wireless telephone service.
1996:The company was spun off from China Mobile Communication Corporation, a state- owned provider of mobile telephone service in mainland China.
The spin-off was part of a strategy by the Chinese for privatizing its telecommunications network. CASE STUDY OVERVIEW
The significant portion of ADRs would be offered for sale in New York.
The convertible bond issue would be priced in U.S dollars and offered to global investors.
November 2000 : The equity and bond offerings were
closed due to oversubscribed by the
investors. - Mr. Xi Guohua
- Join Board of Director of the
company in July 2011
- Chairman of China Mobile
Communication Co. Ltd BACKGROUND OF THE COMPANY 3 Sept 1997 - incorporated in Hong Kong
22 Oct 1997 - listed on the New York Stock
23 Oct 1997 - listed on The Stock Exchange of
Hong Kong Limited (“HKEx”)
27 Jan 1998 - admitted as a constituent stock of
the Hang Seng Index in Hong Kong The tactic of selling equity and debt internationally is becoming increasingly common.
In the past, substantial regulatory barriers separated national capital markets from each other.
These made it difficult for a company based in one country to list its stock on a foreign exchange. these regulatory barriers tumbled during the 1980s and 1990s.
By the middle of past decade, a truly global capital market was emerging.
CHINA MOBILE LTD - Case study overview
- Background of the company
- Case question
- Conclusion Late 2000 : China negotiate to enter the World Trade
: Need to open its telecommunication market
to foreign telecommunications service
: China Mobile realized that they need to
accelerate its expansion into mainland
China to preempt foreign competitors.
Oct 2000 : China Mobile purchase mobile
networks in additional 7 provinces
from its state-owned parent
: Give China Mobile additional 15.4
: Give Hong Kong company a geographically
contiguous market covering all the coastal
regions in mainland China. The price for the deal was $32.8 billion.
How to finance the deal??
Issue additional equity or debt in Hong Kong
but the problem is Hong Kong has small
capital market and cannot absorb multibillion-
The shares of China Mobile were already listed in New York Stock Exchange as American Depository Receipts (ADRs)
China Mobile opted to sell ADRs worth about $6.6 billion and to raise a further $600 million from the sale of five-year convertible bonds. CASE QUESTION 1 : Why did China Mobile feel it was necessary
to issue equity in markets outside of its
home base in Hong Kong? What are the
advantages such a move?
It’s because China Mobile wanted to take advantage of international exchange rates. Since the company wanted to achieve maximum competitive advantage, one way of assuring itself that it will always have adequate capital funding is by seeking external currencies as sources for tapping and hedging against any local market conditions that may have a negative impact on its local stocks. The advantages of such a move are the fact that other major world currencies such as the U.S. dollar tend to be more stable against most world currencies and the fact that being cross listed easily can be a use of additional funding to the company in the future should the need arise. CASE QUESTION 2 : Why did China Mobile price
the bond issue in U.S. dollars
instead of Hong Kong dollars?
Pricing the bond issue in U.S. dollars instead of Hong Kong dollars is to safeguard the stability of the price of its bond. Since the capital markets within the American market is also the most vibrant in the world, pricing the bond in U.S. dollars will ensure that for purposes of trading, there is a more vibrant, ready and willing market that can assure China mobile's bond to have a fair value and upon expiration, market values will most likely be much higher than those of the local market. CASE QUESTION CASE QUESTION 3: Can you see any downside to China Mobile's international
equity and bond issue?
The same reasons that support the companys decision to price their bond offering in U.S. Dollars can also be a downside risk. The greatest risk in the international bond markets is the exchange rates between the nation issuing the bond and the currency in which it was issued. Since the exchange rate between the Chinese Yuan and the U.S. Dollar has been artificially stabilized, the risks are minimized. However, if the exchange rate is released and allowed to float with other currencies, massive fluctuations in the exchange rate can lead to a significant increase in the cost of capital for China Mobile based on this bond issuance. In essence, if bond issuers and investors share the same expectations regarding future exchange rate developments, nominal interest rate differentials will offset expected exchange rate fluctuations. Such is the case if the Yuan to Dollar exchange rate remains unchanged. But if they also share a comparable degree of risk aversion, they will be similarly eager to avoid exchange-risky issues. This exchange rate risk could potentially be a downside risk for China Mobile issuing their bonds in U.S. dollars BY: NOW - selected as one of the “FT Global 500”
by Financial Times and “The World’s 2,000
Biggest Public Companies” by Forbes
magazine, and was again recognized on
the Dow Jones Sustainability Indexes
(“DJSI”). 4 June 1998 - China Telecom (Hong Kong)
Limited completed the acquisition
of Jiangsu Mobile.
28 June 2000 - China Telecom (Hong Kong)
Limited changed its name to
China Mobile (Hong Kong)
Limited. CONCLUSION HISTORY This capital market enabled firms to list their stock on multiple exchanges and to raise funds by issuing equity or debt around the world.
For example, in 1996 the German telecommunications provider Deutsche Telecom raised some $13.3 billion by simultaneously listing its shares for sale on stock exchanges in Frankfurt, London, New York and Tokyo.
Like China Mobile, this company elected to raise equity through foreign markets because they reasoned that their domestic capital market was too small to supply the requisite funds at a reasonable cost.
To lower its cost of capital, they tapped into the large and highly liquid global capital market.