Case Study

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FINA 6092 Advanced Financial Management
Harvard Business School Case Study
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Shenzhen Development Bank

Case Report
Section A: Group 6

Name

CATALOGUE

PART 1: BACKGROUND INTRODUCTION ..................................................................... 1 PART 2: THE INVESTMENT VALUE OF SHENZHEN DEVELOPMENT BANK ..... 1 PART 3: RISK ANALYSIS .................................................................................................... 2 PART 4: RISK CONTROL .................................................................................................... 4 PART 5: ADVANTAGES POSSESSED BY NEWBRIDGE IN THE SDB

INVESTMENT ........................................................................................................................ 4 PART 6: THE VALUE-ADDED FROM NEWBRIDGE AS A PRIVATE EQUITY ....... 6 PART 7: VALUATION OF SDB ........................................................................................... 8 1.

THE PRICE OF SDB’S TRADABLE SHARES ..................................................................... 9

2.

PEER COMPANY TRANSACTION ................................................................................... 10

3.

PRICE TO BOOK RATIO (P/B RATIO) ............................................................................ 13

4.

PRICE TO PPP ............................................................................................................... 14

5.

CONCLUSION ................................................................................................................ 15

PART 8: REASON FOR NEWBRIDGE FAILURE .......................................................... 17 PART 9: KEY LESSONS FROM THE FAILURE ............................................................ 19 PART 10: REACTION OF NEWBRIDGE ......................................................................... 19 1.

IMMEDIATE REACTIONS ............................................................................................... 20

2.

POST INVESTMENT RESTRUCTURING............................................................................ 22

Part 1: Background Introduction

Shenzhen Development Bank, which was a stated-owned bank, enjoyed it popularity in coastal provinces. In 2002, it was at a crossroad and faced with the negotiation with Newbridge, which was an institutional investor, for selling its legal person shares. However, the whole investment process was not smooth for Newbridge. Several problems and risks emerged, including the valuation of SDB and the related risk analysis, etc. In our case report, we will cover these issues in detail and offer our approaches and analysis.

Part 2: The Investment Value of Shenzhen Development Bank

Shenzhen Development Bank (SDB) attracts investors for several reasons. Generally speaking, the dual-track system in China leads to heavy reliance on bank loans as the capital resources, resulting in the popularity and profitability of banking system. On the other hand, Shenzhen Development Bank, as the first commercial bank going public, has already enjoyed favors from investors. The following factors contribute to the investment value of Shenzhen Development Bank.

To begin with, the SDB possesses a promising future in the banking industry. It is the fifteenth largest commercial bank and has a nationwide banking license. It has the right to run a large scale of business without limitation. Although it is faced with poor governance and capital structure, its development potential is huge if proper foreign management mode can be brought in.

Secondly, SDB is involved in traditional commercial and retail banking businesses !

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mostly in more developed coastal regions of China. At the same time, it takes the leading role in the Pearl River Delta region of Guangdong province, arguably the most dynamic regional economy in China. In these areas, a large number of wealthy offers a huge market for...
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