Inner Mongolia Yitai Coal Company Limited Financing Strategy Analysis

Beginning with MM theory, the development of the modern western theories of financing structure features successive appearance of the weighing theory, the encouragement theory, the unsymmetrical information theory and the control right theory, which altogether contribute to the establishment of the modern priority financing theory, namely, internal financing for the first, bonds financing for the second and stock financing for the last. The financing theory of China puts emphasis on case analysis on the basis of the modern western theories.The current situation of financing structure of Chinese enterprises is different from that of overseas ones: western enterprises generally follow "the theory of gradual advance upon a specified order" when they choose the financing mode, namely, from internal financing through debt financing to equity financing, which is mainly due to the mature mode of liberal market economy of western countries while listed companies in our country are generally partial to stock financing, which is mainly due to the irrational equity structure, the management being the actual controller with the owner not in his due position, lack of the bankruptcy mechanism or other restriction and punishment system for listed companies, the immature finance market and the underdeveloped bonds market.Inner Mongolia Yitai Coal Company Limited (hereinafter referred to as "Yitai Company") needs to undertake resources integration, technical innovation for small and medium-sized coal mines and project of large-sized modern coal mines, supporting railway networks and processing line of coal upon readjustment of the state industrial structure, which will cost around RMB3.95 billion for the period between 2006 and 2007.According to the priority financing theory, Yitai Company should at first choose financing from internal sources. As Yitai Company enjoys escalating economic benefit, fat profit reserves and good corporate reputation for successive years, the conditions for internal financing have been achieved. The Company implements internal financing mainly by way of depreciation and accumulation, increasing ratio of profit reserves and commercial credit, totaling around RMB978 million.In respect of financing for external sources, a total of RMB2.972 billion is needed. There are 2 schemes of financing: one is full-scale debt, which includes issuance of RMB600 million worth of short-term financing securities; the other is issuance of additional 75 million A shares, RMB1 billion worth of short-term...