Huaneng Power International
Posted: 12 Sep 2000
Date Written: 1994
Abstract
SUBJECT AREAS: Privatization, international valuation, investment banking, international cross-listing of shares CASE SETTING: 1994, U.S. and China
In early October 1994, Huaneng Power International (HPI), an independent power producer in the Peoples' Republic of China (PRC) is in the process of executing a global equity issue to raise funds for the construction of new power plants. The company is planning to list the new shares through an American Depositary Receipt (ADR) program on the New York Stock Exchange (NYSE). The company has recently reduced the price of the issue due to poor market conditions and investor resistance to the price range stated in the preliminary prospectus. In this case, the student must decide, as HPI management, whether the new offer price and choice of listing exchange is reasonable in light of recent market events and the political, economic, social and technological environment in the PRC.
TEACHING OBJECTIVES
This case is designed to be used in either: an introductory finance course where students have had some exposure to cost of capital and time value of money concepts, or in a global environment of business-type course where the emphasis is on the investment climate in a country and how that climate affects business decisions and risk. Specifically, the case is intended to provide an opportunity for students to:
* Learn about China and its political, economic, social and technological (PEST) environment
* Learn about global and Asian capital markets, cross-listing shares internationally and American and Global Depositary Receipts
* Learn about privatization
* Learn about the power industry
* Learn about international valuation and investment banking
* Learn about capital market disclosure and accounting requirements
SUGGESTED STUDENT ASSIGNMENT
You have been hired by a large U.S. institutional investor considering purchasing HPI stock. Provide an analysis of the PRC, the power industry, key success factors, and HPI's strengths and weaknesses.
What benefits are there to a non-U.S. firm listing on a U.S. exchange? Are there other alternatives that HPI should have considered?
1. Was the chosen issue price for HPI a reasonable value? Present your recommendation on whether, where, how and why HPI should have proceeded with the issue.
2. As an institutional investor, would you have bought stock in this company?
Suggested Citation: Suggested Citation