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


Code : GOV0031

Year :

Industry : Banking, Insurance and Financial Services

Region : China

Teaching Note: Available

Structured Assignment : Available

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Introduction: In March 2007, Beijing-based Xinhua Finance Media Limited (XFML), a provider of financial news and data on China’s markets, raised $300 million in a share offering in the United States – to repay debt and finance acquisitions. The company listed the new shares on the NASDAQ under the symbol XFML through an American Depositary Share (ADS) programme. XFML used the book-building process with J P Morgan and UBS as the book-runners for the issue.4 Each depositary share represents two common shares. XFML priced at $13 per ADS.5 The issue was not fully subscribed. On March 9th 2007 – the day of listing – shares of XFML fell more than 10% below the offering price. And the market value of the issue fell substantially since the launch date.

Afew weeks after the failed IPO, XFML’s parent company Xinhua Finance Limited (XFL) faced two serious setbacks. OnApril 28th 2007, the state-owned Xinhua News Agency – whose association with XFL had played a key role in XFL’s early success – sent a notice saying it has terminated the relationship with XFL.6 On May 17th 2007, Lynn Turner – managing director of research at Glass, Lewis & Co., and the former chief accountant of the SEC – resigned7 from Glass, Lewis & Co., a proxy advisory firm acquired by XFL in September 2006. Shares of XFML dropped to a new low of $8.31.

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XFML’s management must decide on how to manage the new growth 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 programme in US, and in China’s controlled media environment...

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