Private Equity Financing of X Fine Chemical Co., Ltd.
|School||East China Normal University|
|Keywords||Private equity financing Business Valuation SMEs Difficulties in financing|
In a very long time, the bank credit is the main financing channels in our society. But now, with the tightening of monetary policy, deposit reserve ratio of large financial institutions has risen to a record of 21%. Bank loans can no longer meet the needs of enterprise development. It is increasingly important to expand the financing channels Especially for SMEs. Private equity financing has become the preferred mode of financing for our SMEs.X Fine Chemical Co., Ltd. was established in 2005. It is a Private SMEs. It provides services of R&D productions, sales of organic, inorganic chemicals, fine chemicals and polymer chemicals technical. The Companies registered is more than 25 million yuan. The company has three polyacrylamide(PAM)production lines. To face of development opportunities, the company’s managements decide to use a lot of money to expand production capacity.But the company is shortage of funds. One hand, the company has been difficult to obtain loans from banks as a small and medium private enterprises. The other hand, China is currently in the interest rate cycle. The cost of capital from banks and other corporate sources is higher than direct financing. It is not conducive to the operation of the project. The private equity financing introducing strategic investors through non-market orientation, can not only provide funds for the company, but also help regulate the internal governance and promote the healthy development of the company and provide support the resources of private equity investors outside the capital, such as customers, marketing channels, technical experience and so on. Therefore, the management of company decides to introduce private equity investors to increase their investment in order to solve the company’s financial bottlenecks.In this papers we develop a feasible financing for the company that based on the company’s actual situation. The company has been expected to invest 380 million yuan for expansion project. After estimating value, the pre-investment valuation of the company is 490 million yuan. Company decided to raise 210 million yuan through equity financing which accounted for 30% of shares. The remaining funds obtained through bank loans.