Stock Reform of Shenzhen Development Bank
Posted: 13 Mar 2012
Date Written: June 3, 2011
Abstract
Shenzhen Development Bank, China's first publicly traded company, was undergoing the non-tradable share reform. Its current controlling shareholder, private equity firm Newbridge Capital LLC, needs to negotiate with its diverse minority shareholders to find a compromise on the terms of the conversion of the non-tradable shares held by Newbridge into tradable shares. Further delay in implementing this reform will put Shenzhen Development Bank into jeopardy as the bank will not be allowed to raise the additional capital it very much needed, but the negotiation between Newbridge and other shareholders was breaking down. The case discussed the non-tradable share reform in China, its causes and its implications, and from the perspective of one private equity play, discussed the issues of corporate governance, conflicts of interest, and the fiduciary duty of corporate managers in an emerging market.
Learning Objective: This case is used in a course on investment and finance in emerging market, to showcase the intricate interactions between controlling shareholders, minority outside shareholders and the corporate managers. It also laid a vivid discussion of the non-tradable share reform in China, carried out in the 2005-2007 period, which fundamentally changed the characteristics of the Chinese capital market.
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