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Case Analysis Michael

Michael is a leading private air conditioning manufacturer in China chaired by Li Zhigao. It needs $400 million to fund an expansion plan to become the world's largest manufacturer within 5 years. The expansion aims to increase scale and remain competitive. Edward Richmon of Kyungsung bank proposes three funding options: loans, a public offering, or private client investments. The Chinese economy has seen strong growth but challenges include corruption, inadequate infrastructure, and limited financing access. Michael exports to over 20 countries and its only path to higher profits is expanding production through further investment.

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16 views

Case Analysis Michael

Michael is a leading private air conditioning manufacturer in China chaired by Li Zhigao. It needs $400 million to fund an expansion plan to become the world's largest manufacturer within 5 years. The expansion aims to increase scale and remain competitive. Edward Richmon of Kyungsung bank proposes three funding options: loans, a public offering, or private client investments. The Chinese economy has seen strong growth but challenges include corruption, inadequate infrastructure, and limited financing access. Michael exports to over 20 countries and its only path to higher profits is expanding production through further investment.

Uploaded by

Vijesh Mv
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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Case Analysis on Michael

Submitted by
SDMIMD, Mysore
FG 404

Introduction

Michael, leading private air-conditioning manufacturer.

Li Zhigao - Chairman of Michael.

Expansion plan to increase scale & stay viable in the competitive


market.

Edward Richmon, MD of Kyungsung, Hong Kong based investment bank

Michael needs to raise $400 Million for expansion.

Objective Worlds biggest air-conditioners manufacturer within the


next 5 years

Best funding source: loans, public offerings or Kyungungs client


investment?

Chinese Economy

In 1999, Chinas GDP ranked 7th in the world.

In 2004 and 2005, China recorded double-digit GDP growth.

Increased global economy integration due to WTO.

Personal savings of more than $1.8 trillion.

Total Domestic equity capitalization is around $640 billion.

Challenges in doing business are


corruption
inadequate infrastructure
limited access to financing

Stabilized Growth

Export & Domestic demand stabilized after rapid growth.

Average profit margin 5-10%.

Decrease in household air-conditioning brands from 150 to 69.

Fierce price wars- financially weak running out of market.

Economies of scale & enhancing production efficiency only option.

To achieve this companies needed heavy investments.

Valuing Expansion Plan

Export to over 20 Countries all collected in US dollars.

Only option to increase Michaels profit margin is to expand.

Inorganic growth of acquisition is not feasible


1. Not in same geographical region.
2. Technology is obsolete & increases production cost.

Investment Options
Equity Choices:

Hong Kong Stock exchange Regulatory benefits, property rights &


bankruptcy procedures.

Worlds 2nd largest stock issuance $2.95b by China Shenhua Energy.

NYSE & NASDAQ ADRs induce Americans to invest in Michael.

Market Capitalisation by Chinese companies in NASDAQ & NYSE


$3,623million & $27,295million respectively.

Investment Options
Private Placements:

Kyungsung successfully arranged private placements for its clients.

In 2005, size of private equity in China is $602 million

Estimated to double in 2008.

Debt Choices:

Foreign Banks 71 banks from 20 countries.

Relaxation of the foreign exchange control over the banks.

WTO obligations to open Chinas market to foreign banks.

Thank You

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