Question

Provide a real-life example of a long-term external source of finance (debt or equity issue) used by a blue-chip company in Hong Kong. A blue-chip company is defined as one of the listed corporations that constitute the leading stock index. In this case, the leading stock index in Hong Kong is the Hang Seng Index (HSI). Details of the HSI constituents can be found on www.hsi.com.hk. In your essay, describe the nature of the financial arrangement (e.g. purpose, duration, risk assessment, etc.). In your opinion, explain whether this financial arrangement was a right move and suggest alternatives to this arrangement with reference to what you learned in this course and provide justifications.

Answer 1

Ping An insurance is a Hongkong Blue chip company which has used a lot of debt into its business to fuel its growth as it can be seen from its capital structure and debt equity ratio in which there is a presence of large mix of debt financing and equity financing into the overall business firm.

ItIhas used debt financing to the efficient use as the return on capital has been higher than the cost of debt so there have been a creation of shareholders wealth as the gap between the return on the capital and the cost of the debt has significantly led to growth of the company and increase the overall market capitalisation on the basis of Excessive Return.

There is a mix of duration in a case of debt financing and it uses wide mix of short term, medium term as well as long term debt.

Yes, it was a right Move and if alternatives was needed it could have been gone for equity finance or selective debt financing or hybrid financing as well because all this finance will have provided it with additional benefits of both debt and equity.