Shandong Huaneng Power Case

1994

IPO

$22.5~$27.5

Needs $4.5 billion to finance the construction of new power plant

Intend to raise $700 million~$860 million, which is part of the finance of the project

Shandong Huaneng Power

First company registered in PRC to be list on NYSE

Initially issued $333 million but the market value of the issue had fallen substantially since the first day of the IPO

20 days after the IPO of Shandong Huaneng Power, the share price drop from 14.25 to 13.50

In the past: Companies in PRC funded the project themselves or relied on international debt capital

Rapid growth strained internal source of debt capital

Reforms encouraged private ownership of previously state run enterprises

Stock exchange market at that time had little capitalization and liquidity

----BEGIN TO LOOK OUTSIDE TO FIND NEW SOURCE OF CAPITAL TO FINANCE THE GROWTH

Welcomed by several foreign stock markets made it difficult to forecast the success of the global issue

SEC decided to require 2 years audited earning of those PRC companies instead of three years

United States treat PRC very important

Listing in the United States

1) international exposure

2) more institutional investors

delay of the IPO because of the bad condition-Increase of interest rate in order to solve the inflation, which had a reverse impact on the stock market, IPOs slowed down

IPO in October-raise fund to take the charge of a plant that will be completed in December

Socialist market economy

Chinese environment at that time

Reform of economy in China

From a central planned economy to a more market oriented economy

Economic growth up to 9%

Rapid growth of economy-rise in the consumer price-inflation

After 1989,tight control on capital

Lower demand-moderate inflation

Concerns about the economy of early 1990s: Inflation>20% and GNP growth > 12% is unsustainable-needs to find the new way to