Private Placement: Invisible Channel For Corporate Finance

The private placement fund is "a child without a father".

However, the "illegitimate child" raised by stepmother has become the "fragrant cake" that some enterprises are competing for.

The fact that private equity funds are popular with folk strongly shows that private equity funds will acquire their legal status and become another effective channel for corporate financing.

The role of private equity financing as a means of capital raising has become increasingly prominent. From the perspective of international capital market, the number of funds raised through private placement has far exceeded the amount of funds raised by public offering. Therefore, private placement as an important way to raise funds is worth studying seriously by theorists and entrepreneurs.

Private placement or Private offering as a way to raise capital is a concept corresponding to "Public" offering.

Private placement has its distinct characteristics: first, the scope of private placement has strict rules.

Any private placement is limited to investors with certain qualifications and a certain number of ordinary investors, which is the most basic feature of private placement.

For example, the so-called qualified investors in the United States refer to the investment institutions with more than 5 million dollars in assets, such as banks, insurance companies, funds and other companies, and wealthy families with an annual income of more than $300 thousand, and wealthy individuals who earn more than 200 thousand dollars a year. Although ordinary investors do not possess the above conditions, they should have relevant knowledge and risk judgement ability, and the number can not exceed 35.

Two, the securities regulations of many countries clearly stipulate that private placement can not be used to promote securities and raise funds through advertising and prospectus.

It is superior to public offering in many aspects.

First, there are not many restrictions on private placement in terms of object and scope.

Private placement does not impose restrictions on the qualifications of the fundraiser. Whether the legal person or the natural person is a large or small one, whether the benefit is good or bad, as long as the securities issued by you are bought, all enterprises in principle can carry out the private placement.

Secondly, the cost of private placement is much lower than that of public offering.

Public recruitment costs very high registration fees, intermediary costs and underwriting fees. Private placement often does not require registration, nor does it require strict evaluation and audit.

Private placement is easier to innovate.

The flexibility of securities provisions is very strong, which is very helpful for investors to deal with risks and benefits by other means in the absence of liquidity.

The goal is stronger, which is one of the reasons why the private placement has strong appeal.

It can deal with specific investors in a targeted manner, which will make the issue price avoid the impact of the fluctuation of the stock market to a certain extent.

If the market is in a sluggish market, even a securities with high investment value may not be accepted in public market, and private investors can be more professional and rational.

For example, Hongkong's new world in 1995 raised $500 million by HSBC in private placement, which was a successful breakthrough in the capital market's low confidence in real estate development at that time.

There is a long history of private-equity financing: private capital has no private equity concept and corresponding laws and regulations in China.

In order to solve the financing difficulties of small and medium-sized enterprises, private enterprises and private enterprises, and solve their financing difficulties due to the size limit, they did not have the opportunity to issue public bonds or issue corporate bonds. Some enterprises and private financial institutions made innovations and innovations.

Private placement is the role that other financing methods can not play under such circumstances.

The rise of South of Jiangsu's township enterprises in the 80 era was largely a success of capital mobilization. At that time, because of the strong planned economy color of the government finance, the grass-roots government mobilized the local farmers to raise capital shares to obtain financing for the development of enterprises.

Another form is represented by the Wenzhou area of Zhejiang.

There are not many township enterprises in the region, but the economy is developing very fast, almost becoming a banner of Zhejiang.

The way of capital mobilization relies more on market-oriented private lending and private placement.

Guangdong's development benefits from foreign investment, but the role of private placement must not be ignored.

Since the middle of 90, private placement has entered a new stage of rapid development in China.

The impetus from three aspects further promotes the development of private capital market: the private capital lending market which has been formed for a long time is becoming more and more obvious with the increasing accumulation of people's wealth, the introduction of overseas venture capital concept, the entry of large numbers of Overseas Investment Corp and the development of local venture capital organizations. Many large enterprises groups have also stepped into the field of venture capital, and their experience has helped more and more SMEs grow. The development of domestic stock market has also made financial consciousness popular among the people and objectively promoted the development of private financing.

The successful case of sina's private placement is the development of private placement before Sina.

When we analyze the private placement process before Sina's listing, we can see how private placement helps a start-up to grow and succeed.

In December 18th 1993, the four way profit was formally established in Beijing.

Specific circumstances: first, the Hong Kong listed companies of the four pass group, the four way electronics invested 3 million 500 thousand Hong Kong dollars to set up a profitable investment, of which four electronics accounted for 70% of the shares, and Wang Zhidong and Yan yen Chao accounted for 30% of the technology shares. The four group then invested 1 million 500 thousand Hong Kong dollars and the same side of the investment to establish four four benefits, so that four had a 79% share in the new company (about HK $four), and Wang Zhidong and others had the share (HK $).

When the first private placement ($6 million 500 thousand) took place, two of the 6 million 500 thousand Vc firm in the United States: warden group, Bank of America Luo, and aihao International Group invested $6 million 500 thousand in four channels in October 1997. In addition, the original four pass was valued at 8 million 500 thousand US dollars, and its market value reached 15 million dollars, which was 23 times of the initial stage.

The data that can be found in US $6 million 500 thousand are 1.66667 US dollars per share, 6 million 500 thousand US dollars and 3899922 shares, of which the warden group subscribe for 1 million 800 thousand shares with a capital contribution of about 3 million US dollars.

In, 1998 merged with Huayuan to set up Sina. In the year of 1998, the four parties merged the Huayuan network and established Sina network, and Huayuan bought 1 shares for the 0.38 shares.

In the merger and acquisition, the four parties assessed the value of US $30 million and assessed the value of 20 million yuan by the website. According to the analysis, the four parties accounted for 60% of sina's value and 40% accounted for 60%.

In April 1999, Sina completed second international financing of $25 million, and the lead of this time is Walden investment. At the same time, new investors are introduced: software bank, Goldman Sachs Group and Singapore economic development board, etc. in four, second.

After the second acquisition and financing, the total value of the company reaches $83 million 800 thousand, and its appreciation is 5.6 times (compared with the four pass, after the first financing, the valuation is 15 million USD).

The financing of the company is priced at 2.8 US dollars per share, and 25 million US dollars in 8928571 shares, of which the warden group subscribed 2 million 850 thousand shares, invested 8 million US dollars, and two times invested 11 million US dollars.

The financing of sina is estimated at US $58 million 800 thousand, which is appreciated by US $8 million 800 thousand compared with the initial stage.

The third private financing situation of sina (1999) has been completed in November 7th, and more than $60 million has been completed in the year of 1999.

This financing is led by DELL computer, and other new investors include Singapore computer multimedia manufacturer, innovation technology, Taiwan famous antivirus software company, trend technology, Sumitomo Japan and so on.

The fund is priced at $8.32 per share, and 7211538 shares in 60 million US dollars, of which Walden subscribed 600 thousand shares and invested about $5 million.

Sina's original long-term investors, including Japan's famous venture capital group, software bank, Goldman Sachs Group, Singapore economic development board and warden investment group, are also involved in the increase.

At this point, Sina (SINA) has become increasingly popular with the support of private equity funds. In 2000, SINA was listed on the US NSDK. After many years of burning money, the company finally announced that it would realize its annual profit in 2003 and complete the pformation to mature enterprises.

At the same time, private capital has gradually increased, and the two sides have formed a virtuous circle.

The "Sina" shows that the successful development of sina network is closely related to private capital.

We can be sure that the role of private capital in the development of SMEs will be even more prominent: in the current period, private capital is of great significance to high-tech SMEs.

The low industrialization rate of high-tech achievements is a big problem in China. One of the most important constraints is financing difficulties.

Although Guarantee Corporation has made some contributions to the growth of hi-tech enterprises, Guarantee corporation can provide limited funds.

At the same time, because of the great uncertainty in the industrialization process of high-tech achievements, there is a larger information asymmetry between the outcome owners and investors, making it difficult for high-tech achievements to obtain funds from the formal financial sector. Private placement can play a significant role at this time.

Private placement can break through the restrictions of formal finance on credit records, scale, profitability, guarantee and so on. It can also attract investors and compensate investment risks with flexible terms, so it can become a good way to finance high-tech industries.

Private equity is conducive to the development of private enterprises.

It is difficult for China's private enterprises to obtain funds from formal finance. This situation can not be reversed in a relatively short period of time. Even if the financial market is very developed, small enterprises will hardly benefit from formal finance.

Proper development of private capital market can make up for this.

Private placement is an important way to introduce strategic investors to a certain stage of development.

The establishment of strategic cooperative relations, for those already have a certain scale of enterprises, in the process of seeking cooperation with large international companies, we can fully consider the use of private placement.

The cooperation between Jiangling Automobile and Ford and the cooperation between Tsingtao Brewery and AB company in the United States were examples in this case.

The development of private capital is the trend of the times. China's private capital is still in the underground and semi underground state.

Because there is no concept of private placement in China's formal legal documents, coupled with the concern of regulators on the risk and fraudulent nature of private financial activities, private placement is actually suppressed.

Taking some measures to moderately develop private capital market in China may be a feasible way.

First, we should build a platform for sustainable development on the legal level for private placement.

Private equity should be defined as a formal legal concept and its scope should be defined.

Private Limited by Share Ltd should be allowed.

China is very strict in the establishment of Limited by Share Ltd. If the relevant laws stipulate the minimum amount of registered capital of Limited by Share Ltd, it is stipulated that when natural persons establish Limited by Share Ltd in the way of initiating, there must be more than five sponsors. And when collecting Limited by Share Ltd by way of recruitment, they must be publicly collected, which will increase the difficulty of setting up a proxy.

If the legal status of private placement can be established, it is very beneficial for small companies to establish the legitimacy of Limited by Share Ltd in the form of private placement.

This requires that the company law and securities law be amended accordingly.

Secondly, we should develop institutional investors and appropriately develop specialized institutional investors.

The risk of private capital is large, so the investors can only be investors who have the ability of risk judgement and risk tolerance.

Most of these investments come from institutional investors, such as pension funds, endowment funds, insurance companies, investment companies of large enterprises and so on.

For private capital market, professional institutional investors are not only conducive to supervision, but also can be involved in the governance of funded enterprises, so that they can control investment risks more effectively.

At the same time, the development of counter traders and OTC markets is still very low. The liquidity of private equity securities is very low. The characteristics of private securities also decide that it is impossible to conduct large-scale circulation in the formal trading market. Trading and OTC trading between institutional investors is the only way for private equity securities to flow.

The NASDAQ we know best is based on OTC.

The OTCBB counter market, which was established in 1990, has made great progress in just 10 years. At present, there are more than 4600 securities traded, reaching six or seven thousand at a time, far more than the New York stock exchange.

Private equity capital