Categories
SEARCH RESULTS
  • Data mining from web search queries to build a trading strategy on SSE Composite Index

    09 Feb 2017
    798
    14

    Markets are mostly driven by humans who react under the influence of their emotions. These “animal spirits” create inefficiencies and anomalies in financial markets and the study of investors’ behavior can product valuable information for future market moves. On the other hand the big amount of data humans produce every day can give an insight on their feelings, their will or their worries. Baidu.com, which is the Chinese equivalent of Google.com, makes public the search queries data it recorded since January 2011. This paper makes use of this search queries information to build an investor sentiment index whose aim is to approximate the sentiment of market participants. It then derives from this index a profitable trading strategy on the Shanghai Stock Exchange (SSE) Composite Index. By defining and optimizing several investor sentiment index building strategies, the study produces two trading strategies that outperform the standard buy and hold strategy over the specified period (2011-01-03 up to 2015-12-09).
  • ANALYZE CHINA OWNERSHIP ON US COMPANY AND EXPERTISE GAINED IN ENTERTAINMENT INDUSTRY – DALIAN WANDA’S ACQUISITION OF AMC THEATRES CASE STUDY

    09 Feb 2017
    822
    14

    AMC Theatres, a huge but in trouble American cinema operator, was about to be the next victim of an LBO with negative net results for few years. Therefore, the Hollywood tycoons and industry were very surprised when Dalian Wanda Group announced the acquisition of AMC Theatres for US$2.7 billion in 2012. Private equity funds, owners of AMC Theatres had left the theatre chain to deteriorate day after day compared to its competitors so that the bulbs of the projectors were not changed, projecting poor quality films. AMC is an old cinema chain, in a sector where competition is fierce and with no growth market. One might even wonder if Wanda can make money after the acquisition, or simply enjoy a company in difficulty, help them getting their head above water and make another disastrous Chinese investment. Nevertheless, 15 months later, Wang Jianlin, owner and chairman of Dalian Wanda Group and the second richest man in China at that time, saw the value of its shares in AMC Entertainment more than doubled, making a gain of US$800 million. This essay aims to analyze and evaluate in detail how to value a cross-border acquisition from a Chinese perspective in the entertainment industry, analyse how China ownership impacted America's AMC performance and how Dalian Wanda got strategic gains like film distribution, chain management and production standards bringing new content or technology back to China. This analysis includes industry conditions and market conditions since the two companies went public, assess the rational of the transaction in the operating performance and how the two markets and business model differ from each other. Meanwhile, this essay elaborates in detail how, through this acquisition, Wanda has turned into the biggest cinema operator in the world, and has gained a global key position, spreading Chinese soft power abroad.
  • Chinese Investment in the Carbon Risky Canadian Oil and Gas Industry

    09 Feb 2017
    2110
    13

    Chinese investor Tri-Win International Investment Group Inc. (Tri-Win) acquired Calgary, Canada based oil and gas producer Hyperion Exploration Corporation (Hyperion) on January 9th 2015 for CAD$31.9 million taking the previously listed Toronto Venture Exchange traded company private. In the developing climate sensitive landscape of Canada, increasing importance is being placed on combatting climate change and putting a price on carbon dioxide emissions. Due to the carbon intensive production of unconventional Canadian oil and gas products, current and future Chinese investors within this industry must adequately quantify their financial exposure to carbon risk in their valuation models. This thesis seeks to critically analyze whether Chinese investor Tri-Win used a methodology for quantifying and valuing carbon risk with the acquisition of Canadian oil and gas producer Hyperion and if it was sufficient or not. The implications from this thesis for Chinese investors stem from a unique methodology for quantifying carbon risk in oil and gas investments within the country of Canada. Through this analysis, it will be shown that Tri-Win did not accurately quantify their exposure to carbon risk leading to significant future carbon risk exposure. This lack of accurate valuing of carbon risk exposed them to substantial impending financial liabilities with regards to an encumbering stricter landscape for carbon emitters.
  • SUCCESS OF HORIZONTAL M&A BETWEEN MARKET DOMINATORS - CASE STUDY OF CTRIP ACQUIRING QUNAR

    09 Feb 2017
    799
    13

    Horizontal M&A between market dominant players can bring in tremendous synergy but faces tight constraints and conditions. This paper aims to detect the keys to success of Ctrip acquiring Qunar and offer lesson to other horizontal M&As. The key success factors can be divided into four parts: For negotiation counterparty, this paper analyzes conflicts on M&A decision. Given the shareholder structure of Qunar, Baidu is actually the decision marker. That’s why Ctrip successfully reached M&A agreement with Baidu without approval from management of Qunar. Shareholder structure and board seat are two keys for acquirer to find proper target and right counterparty to negotiate with. For choice of payment, from answering why Ctrip acquired Qunar through share-exchange with Baidu, this paper illustrates the significant role of stock-for-stock payment and consideration in a real case. For determination of stock exchange ratio, this paper utilizes market approach and equity value approach to decide valuation range for Ctrip and Qunar, which provides valuation example for such horizontal stock-for-stock merge. For transaction structure design and regulation, such horizontal M&A may result in higher concentration ratio of an industry and will face regulation of anti-trust law. This paper studies anti-trust law in China and find out why Ctrip only acquires less than 50% of Qunar to offer a lesson for other deals.
  • M&A OF GAME COMPANIES IN A-SHARE MARKET – A CASE STUDY OF OURPALM CO., LTD’S SERIAL ACQUISITIONS

    09 Feb 2017
    740
    9

    With the introduction of Growth Enterprises Market Board in China, we are posed with great challenges to understand M&A from light assets industries, with high market to book value. A representative sub industry is game industry. This thesis used the format of case study and took Ourpalm Co., Ltd’s serial acquisitions as an example. This thesis discussed about motivations for conducting serial acquisitions, valuation method and characteristics of game companies, rationality of target companies’ valuation, level of synergy, and deal term feature in game industry M&A. It was found that one of the targets, Hainan Dovo was fairly priced, but market zeal for acquiring game companies played a significant role. Post-acquisition analysis showed that sharing of channel resources was the most important synergy in game industry M&A. This thesis displays insight of game industry M&A in A-share market, and provides reference for acquirers and investors in future game M&A deals. Since the acquiring company was the only listed game company in mainland China back to 2013, it offered us a unique opportunity to examine the synergy among them, and compare the serial acquisitions horizontally. In addition, many conclusions are also applicable for other light assets companies. Since China’s economy is now undergoing an extensive transformation from heavy assets driven to light assets driven, our understanding of light assets companies’ M&A becomes more important.
  • DEBT RESTRUCTURING WITH FOREIGN DEBT HOLDERS: A CASE STUDY OF KAISA

    09 Feb 2017
    780
    11

    This paper discusses theories about debt restructuring with an extensive case study of the debt restructurings of Kaisa, a Hong Kong listed real estate developer in China. This paper serves to help understand disadvantages of foreign debt holders in restructurings, as well as key considerations of debt holders in debt restructurings, especially with family firms as the borrowers. The case study starts from the two restructuring plans of Kaisa as well as the reaction of the market and offers real world evidence for theories above. This paper achieves the following main results. Firstly, foreign debt holders suffer from information asymmetry and under-collateralization issue which are caused by geographic disadvantage and capital regulation policies in China. Secondly, major considerations of the debt holders include economic return, security of restructured debts, as well as lower bargaining cost and feasibility which help to close the restructuring faster. Especially when the borrowers are family firms, debt holders should be cautious to use equity injections and debt-for-equity swaps since family firms are sensitive to dilution of control power. Kaisa’s case is the first default and first debt restructuring event of oversea bonds issued by Chinese real estate companies. This study provides references and experience for foreign investors’ future investment in similar securities. Moreover, this case could also be teaching material of corporate finance course as it is originally designed.
  • Efficiency of Technical Trading Rules in China A-Share Market

    09 Feb 2017
    687
    11

    Technical analysis is to forecast the future movement of stock price based on the study of history information. Common technical indicators include moving average, Bollinger Band, Relative Strength Index and so on. Though the efficiency of technical analysis is under suspicion, many investors use technical analysis to help to make investment decision. This thesis attempts to test the efficiency of technical trading rules in China a-share market. A new technical indicator —— net price volatility (NPV) is brought up, which is calculated using the open price, highest price and lowest price of the stock intraday. A trading strategy is built based on this new indicator. This thesis first investigates the performance of the strategy on CSI300 index and compares it with the buy and hold strategy. We also conduct trading strategies based on other common technical indicators and evaluate their performance. Second, we did a thorough robustness analysis. We investigate the performance of our strategy in different years, different volatility market, different liquidity market, different parameter and trading cost settings. We also test the strategy on different market indexes, industry indexes and individual stocks. The strategy shows a consistent performance over different underlying assets, which further certifies its efficiency. Third, we make modifications to the strategy, test the performance on two real life financial asset and construct a financial product based on the strategy.
  • GOLD-LINKED INTERVAL CUMULATIVE STRUCTURED PRODUCT DESIGN AND ANALYSIS

    09 Feb 2017
    669
    1

    Chinese families are putting increasingly more of their total wealth to financial asset than real estate and savings account. This is largely attributed to the popularization of Alibaba’s Yuebao and the bull market started from 2014. However, most of the individual investors can only take long position in exchange traded asset with relatively small trading unit. This limited their profitability. Structured product can serve as a solution to help individual investors to achieve desired risk-return profile and do their asset allocation, for example, asset allocation among equity, bond, and commodity. Asset allocation is the major revenue source of investment, rather than just doing stock selection all the time. Structured product has been developed at a very fast speed in China since 2004. However, most of the domestic banks only serve as a distribution channel. The process of design and hedging are done by foreign investment banks. However, the No.35 article issued by China Banking Regulatory Commission put stricter limitation on financial product. Previously, banks can lend money to long term project by issuing short term product in a rolling basis. Now, this is prohibited therefore high yield of short term product is unsustainable. The potential highest return of structured product can attract many investors who believe themselves are knowledgeable. Despite the development, some banks didn’t do well in risk management judging from their product instruction. Exposure is left unhedged. On one hand, leaving exposure unhedged from experience is allowed. On the other hand, risk should be matched with return. Some banks didn’t state under which circumstances there will be a loss and to what extent the loss will be, but require the profit beyond maximum return distributed to issuer as floating management fee. This made the product more like a capped mutual fund and we have reason to worry about agency problem. In this paper, I designed a gold-linked interval cumulative structured product.
  • THE APPLICATION OF TWO-TIER SPECIAL PURPOSE VEHICLE IN CHINESE ENTERPRISE ASSET-BACKED SECURITIZATION - A CASE STUDY ON STELLAR ABS

    09 Feb 2017
    788
    7

    By the combination of theoretical analysis and a case study on Stellar ABS, this paper helps to understand the how two-tier SPV structure differs from traditional ABS structure and the benefits of applying two-tier SPV structure. The analysis would be done in mainly three aspects: the advantages of enterprise ABS, the differences of one-tier and two-tier SPV structure and their applicability, and the benefits & costs of two-tier SPV structure. The research has got the following main results. Firstly, enterprise ABS has its strengths over bank loans and corporate bonds on the liquidity it provides and the flexibility over financing scale and duration. Secondly, two-tier SPV uses a trust scheme as the second SPV. So trust beneficiary right becomes the underlying asset while cash flow from issuers becomes the trust loan repayment source. So one-tier SPV structure is more applicable to enterprises whose existing and specific assets can generate sustainable cash flow within the duration of ABS with contractual or regulatory proof. For other enterprises that have sustainable cash flow but cannot fulfill all the criteria, two-tier SPV structure is suggested. Finally, two-tier SPV structure helps sidestep several constraints, making it possible for some companies to finance through securitization. Economies of scale can be realized by combining related income categories or companies together in one asset pool. Risk diversification effect can also be realized by involving different assets with low correlation into the same asset pool. Taking account of the immaturity of ABS market, enterprise ABS with risk diversification feature would be more appealing to investors. This case study contributes to the research and practice by providing implications on the applicability and benefits of two-tier SPV structure in enterprise ABS.
  • THE KEY SUCCESS FACTORS OF ONLINE TRAVEL BUSINESS MODELS AND THEIR INFLUENCE ON VALUATION—A CASE STUDY OF HUOLI HOLDINGS

    09 Feb 2017
    681
    7

    This thesis analyzes the key success factors of online travel business models and their influence on the company’s valuation. We propose three most important key success factors, which are 1) core function design; 2) profit model’s consistency with core function; 3) closed loop O2O system. These factors can influence representative companies’ abilities to acquire users and turn users into revenue, thus influence their valuation.  The good core function design should provide simple and convenient travel information and services. This kind of core function can significantly improve companies’ ability of user acquisition.  The profit model’s consistency with the core function is the key success factor that can increase user’s willingness to pay, thus improve companies’ ability to turn users into revenue.  Closed loop O2O system is the online transaction—off-line consumption—online feedback circle. It can strengthen users’ trust in service quality and improve companies’ ability to turn users into revenue. Huoli Holdings’ case is used as an example to study in detail the key success factors’ influence on its user acquisition and revenue generating abilities. We also analyze how those KSFs determine firm valuation by influencing these core abilities. The conclusion contributes to theoretical study of online travel business models, and the key success factors can also be used in practical as guidance for related companies.
  • PRIVATE EQUITY’S EXIT STRATEGY FOR INVESTMENTS IN CHINESE OVERSEAS LISTED COMPANIES – CASE STUDY OF JIN JIANG ACQUIRING KEYSTONE

    09 Feb 2017
    755
    14

    This thesis analyzes private equity’s exit strategy for investments in Chinese overseas listed companies based on the case study of Jin Jiang acquiring Keystone from the following perspectives. Firstly, motivations and functions of PE investors in the PPP (Public-Private-Public) process of Chinese overseas listed companies are discussed. Valuation arbitrage opportunity between overseas and domestic markets is the most direct reason for PE investors to participate in this process. Secondly, exit options and criteria of PE investors in formulating exit strategies are investigated. For investments of Chinese companies delisted from overseas market, there are four typical exit options in China: IPO, backdoor listing, New Three Board listing and M&A. This paper thoroughly analyzes their differences and practical issues PE investors need to consider under each option. PE investors will evaluate each option by various criteria including return, convenience, risk, timeliness and liquidity. For investments in Chinese companies delisted from overseas market, PE investors especially value three criteria of the exit option: timeliness, risk and convenience. Thirdly, exit payment method and post-investment managements are discussed. In terms of payment methods in an M&A transaction, cash payment has advantages of avoiding post-deal risk, high certainty and high timeliness for PE investors. In terms of post-investment management, active management of PE investor is beneficial for its successful exit. The contribution of this thesis comes from two sides. Theoretically, this thesis investigates a practical and timely issue based on theoretical frameworks; Practically, this thesis provides guidance and insights for PE investors in their future investments.
  • LEVERAGE-FUELED GROWTH OF CHINESE REAL ESTATE FIRMS —A CASE STUDY ON YANGO GROUP

    09 Feb 2017
    700
    5

    The real estate industry in China is typically capital-dependent with one of the highest leverage levels compared to other industries. Motivations for choosing high leverage and how real estate firms manage the leverage risk and achieve high growth are very important topics in corporate management and corporate finance. In this paper, I combine theoretical and empirical analyses to study the phenomenon of high leverage commonly employed by Chinese real estate firms. In particular, I study Yango Group Co., Ltd (“Yango”), a real estate firm publicly listed in the Shenzhen Stock Exchange since 1996. In 2012, Yango changed the location of its headquarter from Fuzhou to Shanghai. Since then, Yango has employed high-leverage and achieved 1000% sales growth in just 3 years. By using a high-turnover strategy and diversifying its financing channels, Yango has managed the leverage risk as well. This case study will provide valuable insights to publicly listed real estate firms, especially small and medium sized developers. Although bank loans were recognized as the most frequently used and most traditional financing channel, government policies have driven real estate firms to finance through non-bank innovative financial instruments such as trust, fund, stock pledge, etc. Because Chinese real estate firms’ financing needs are not met by traditional debt or equity financing channels, these firms have incentives to resort to other forms of leverage channels. As a result of their aggressive expansions with high leverage, these firms face risks of inventory pile-up, cash flow management failure and bankruptcy. Real estate firms could implement high turnover strategy and diversified financing channels in order to manage high leverage risk.
  • Product Analysis and Pricing Study of Automobile Loans Asset-Back Securities

    09 Feb 2017
    683
    9

    This thesis considers the product characteristics and pricing methodology of automobile loans asset-backed securities in China. Firstly, this thesis describes the macro-environment and market needs for this product, suggesting it will head for peak in near future with the support by Chinese regulators. Secondly, the whole process of securitization of automobile loans is constructed based on the collateral traits and regulatory requirements in China. Thirdly, the methodology and rationality of the pricing model is demonstrated and Monte Carlo simulation back test is done by pricing one representative product--- Rongteng II auto ABS. The model is considered to be effective for pricing automobile loans asset-backed securities as well as making the investment and risk management decisions. The key extensions and innovations of this thesis are that the model could price floating-rate asset-backed securities; the values of asset-backed securities could change over time by different distribution of prepayment and default patterns; the product could be a key solution to the problem of automobile finance companies in China.