Hutchison Case Study

Question 1:

a. New shares issue

Outstanding shares = 2000 million

A new shares issue at $48.8

Total capital raised = $1 billion = HKD$ 7800 million

Total shares issued = 159.8 million

New share capital = HKD$ 8704 million

(Hong Kong corporate tax rate at 16.5 percent (in 1996)

Profit after taxation = 7800*(1-16.5%) = 6513

Assume stable growth of 10%

Profit for the year retained = 6513*60% (Dividend policy 2:3)+5300*1.1 = 9521.6

Shareholder equity at the beginning of the year = HKD$ 904 million;

Ending Shareholder equity (after the new share issues) = HKD$ 8704 million

• Return on Equity = 9521.5 / (904+8704)/2 = 1.98

Financial leverage = 26174/(8704+Reserve*1.1) = 0.3

PERFORMANCE DATA

Earnings per share

Dividends per share

Dividend cover

Return on shareholders' funds

Current ratio 1996

3.32

1.50

2.1

17.4

0.9 1995

2.65

1.18

2.2

16.3

0.8

b. Long-term debt issue:

Interest cost : HIBOR+70bps = 5.32%+0.7% = 6.02%

(Hong Kong corporate tax rate at 16.5 percent (in 1996)

Profit after taxation = 7800*(1-6.02%)*(1-16.5%) = 6121

Assume stable growth of 10%

Profit for the year retained = 6121*60% (Dividend policy 2:3)+5300*1.1 = 9502.6

• Return on Equity = 9502.5 /904 = 10.51

Financial leverage = (7800+26174)/58839 = 0.6

Question 2:

Future financing needs: Since the internal generated capitals are not sufficient for Hutchison's future projects, it is reasonable to focus on generate enough capital