XFML : Betting on China – International Financing, Emerging Markets, and Corporate Governance Risk



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Code : GOV0031

Year :
2007

Industry : Banking, Insurance and Financial Services

Region : China

Teaching Note: Available

Structured Assignment : Available

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Abstract: An increasing number of companies from emerging countries are seeking a secondary listing in the global equity markets. Such listings are expected to have a number of benefits to the companies in terms of enhanced liquidity, reduction in the cost of capital and ability to raise capital from big institutional investors. However, significant costs are involved in a cross-listing, for reporting policies to be converted to US corporate governance standards.
In March 2007, Shanghai-based Xinhua Finance Media Limited(XFML), a provider of financial news and data on China's markets, planned to raise $371.5 million in a share offering in the US to repay debt and finance acquisitions. Subsequently the company listed new shares on NASDAQ under the symbol XFML for $13 each through American Depositary Receipt (ADR) program. After a few weeks of failed IPO, which was previously indicated as "near-hot", XFML has faced two serious setbacks. Xinhua News Agency - whose association with XFML's parent company Xinhua Finance Limited (XFL) had played a key role in its early success - had sent a notice saying it has terminated the relationship with XFL. Lynn Turner - managing director of research at Glass, Lewis & Co., and the former chief accountant of the SEC - resigned from Glass, Lewis & Co., a proxy advisory firm acquired by XFL in September 2006. Consequently shares of the company dropped to a new low of $8.31.
Now, XFML's management must decide on how to manage the current crisis and remain focused on creating value for its shareholders. And that too, adhering to standards of corporate governance and transparency in context of its ADR, and in China's controlled media environment.

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Pedagogical Objectives:

  • The case study is structured to help students understand:
  • The theoretical underpinnings of Corporate Governance: the principal-agent problem and markets with asymmetric information
  • The need for international equity financing
  • The ADR process
  • Questions and issues for Corporate Governance, in the case of XFML
  • The strategic aspect of investor relations.

    Keywords : China, Financial media, Distribution, Emerging markets, International finance, ADR, Corporate Governance Case Study, Corporate Governance, Initial public offerings, Financial restructuring, Dual-class shares, Asymmetric information, Investor relations, Valuation

    Contents :
    » Media Industry in China
    » Xinhua Finance – Emergence and Growth
    » XFML: Xinhua Finance Media Limited


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