China Mobile Case Discussion Questions 1. Why did China Mobile feel it was necessary to issue equity in markets outside of its home base in Hong Kong? What are the advantages of such a move? 2. Why did China Mobile price the bond issue in U. S. dollars instead of Hong Kong dollars? 3. Can you see any downside to China Mobile's international equity and bond issue? Answers 1. Maybe it’s because China Mobile wanted to take advantage of international exchange rates.
Since the company wanted to achieve maximum competitive advantage, one way of assuring itself that it will always have adequate capital funding is by seeking external currencies as sources for tapping and hedging against any local market conditions that may have a negative impact on its local stocks. The advan
...tages of such a move are the fact that other major world currencies such as the U. S. dollar tend to be more stable against most world currencies and the fact that being cross listed easily can be a use of additional funding to the company in the future should the need arise. 2.
Pricing the bond issue in U. S. dollars instead of Hong Kong dollars is to safeguard the stability of the price of its bond. Since the capital markets within the American market is also the most vibrant in the world, pricing the bond in U. S. dollars will ensure that for purposes of trading, there is a more vibrant, ready and willing market that can assure China mobile's bond to have a fair value and upon expiration, market values will most likely be much higher than those of the local market. 3
I don’t see any downside issues that should discourage China Mobile's international equity and bond issue.
Probably, there would be more of a challenge in the socialist culture of China. By pricing its equity and bond internationally, the local market may shun from the company on their capital markets since it’s perceived to be more attractive in international players. Although China Mobile’s international equity and debt offering was among the largest to date, the tactic of selling equity and debt internationally is becoming increasingly common. This represents a sharp break from common practice during much of the 20th century.
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