Complete Listing By Private Equity Placements:Tunneling Or Alignment Of Interests

As a way of refinancing, private equity placement was presented by the CSRC in2006. And owing to the special issue object and price, private equity placement has become the most popular refinancing means for the listing corporation in Chinese capital market. Due to the advantages of lower cost, simple operation process and low barriers to entry, this kind of way to raise money has been widely recognized in the capital markets.But in our country, quite a number of private equity placements are partially or even completely for associated investors such as big shareholders, etc. And major shareholders tend to subscribe directional issuance of shares with their own assets, so as to realize overall listing. However, this way also contributed to related party transactions on an unprecedented scale.In this paper, through theoretical analysis and the analysis of institutional constraints,there is higher risk of tunneling in the field of equity private placement because of the big shareholder opportunism motivation, asymmetric information and agency problems in the currently issuing system and market environment. And the private placements completely for large shareholders are at higher risk of transmission. Based on the research background,this paper would study China Shipbuilding Industry Company Limited as a case to fully explore whether complete listing by private equity placements is tunneling or alignment of interests, which will provide the direction and basis for the improvement of relevant policy specification.First of all, this paper expounds the related theory of private placement and overall listing, and then reviewed the relevant research both at home and abroad. Based on those,the paper introduced the case of China Shipbuilding Industry Company Limited from the aspect of horizontal competition, related party transaction, operating performance and market performance after the complete listing by private equity placements to analysiswhether the action is tunneling. On the other hand, the paper also studied the pricing of new shares, earnings management and the distribution of profits to analysis whether the action is alignment of interests. Finally through the analysis of the economic consequences, the paper found that there is a greater risk of the indemnification in complete listing by private equity placements. Based on above,the paper then got relevant enlightenments.