Valuation Adjustment Mechanism For Developing Private Corporation Financing

After china Mengniu Dairy Holdings listed on Hong Kong stock exchange and Suntech power Holdings Co.ltd listed on New York stock exchange, the two companies quickly became world-famous company. The valuation adjustment contract, which the two companies signed with Venture Capital attracted public's attention.Concluded from many cases about VAM in china, we find that financing needs are always from developing private companies in china while investors are always international famous VC, like Morgan Stanley and CCP.Based on this conclusion, the paper firstly investigates why is the developing private company in china signed VAM with VC and find two reasons. One side, after reform and opening to the outside world, china now grow quickly. Recent years, when developed countries in west grow slowly, GDP in china is always nearly 10%, so developing private companies have many opportunities to become magnate in their industry. During this stage, their financing needs are full of risk. The other side, though china's economic system has turned from planned economy system to market economy system, private companies always are not easy to get money from financing intuitions. With finance crisis in 2007, financing situation for private companies is even harder.Supplies are always with needs. Venture Capital has already been very mature in western countries. Venture capital is compounded capital, which includes chiastic of finance capital, human capital and reputation capital. It is good at dealing with high risk and longing for get high profit from high risk, so VC always are with companies with high risk. Then paper introduced Valuation adjustment mechanism which links capital with industry effectively and realize high profit. The core thoughts of Valuation adjustment mechanism is determining the number of stocks each side should have by company's performance last stage.Next writer analyst two typical cases to further research valuation adjustment mechanism. The two cases are China Mengniu Dairy Holdings, which is traditional company and Suntech Power Holdings Co.LTD, which is High Technology Company. Writer finds that in these two different companies, the key to design a valuation adjustment contract is to design contract by different situations of each other and different market situations. Writer analyst different invest tools and system used in these two cases, and conclude distinguish feather of valuation adjustment contract used in these two cases.At last, writer concludes consideration of valuation adjustment mechnisn, restrictions for VAM when it is used in china, points for attention when companies in china intend to use VAM and the new development of VAM in china.