2. Clover Machines Case: Dabbling in International Markets?
1. What are overall benefits of tapping international markets? Does it make sense for Clover given its success in using domestic capital markets? Global financial markets are often larger than domestic financial markets. This means that financing issue size can be larger, costs can be lower and contract flexibility can be higher. But global markets are typically only available for large firms. Clover appears to be of sufficient size for tapping global markets. Clover is a well-known issuer of capital in domestic markets and a large number of analysts (16) follow the firm. It might be the right time to explore global markets and make its brand known in other countries also: this may produce long-term benefits for Clover as it expands and requires more capital.
2. Why did the report contain no mention of foreign equity markets? While global debt markets offer opportunities for U.S. issuers, the U.S. equity markets offer unsurpassed strength and opportunity. Consequently, U.S. firms like Clover do not even consider foreign equity markets when they desire additional equity infusion. This posture on the part of U.S. firms has been evident in recent decades, but there is no certainty that the situation will persist in the future.
3. What are general pros and cons of medium-term versus long-term debt financing? Floating versus fixed rate? Given Clover’s current situation, is one approach generically better than another, without giving consideration of financing specifics? The three possibilities identified by Mr. Peng include a medium-term offering and two long-term offerings. In fact, the medium-term offering is a floating rate note and is similar to a short-term offering that is rolled-over annually. What are general considerations affecting debt maturity? Asset structure is one important factor: the more permanent the assets are, the greater the bias toward long-term funding. From the case it...
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