[The 16th Review of JD Business School] Company’s Financing Mode in the “New Normal”
China, having entered the “new normal”, still boasts huge market potential with a population of 1.3 billion. However, industries are still relatively dispersed with a low securitization ratio. Statistics show that among the over 1,600 private enterprises listed in the A-share market, few has a market value of over USD 10 billion; whereas among their 7,391 counterparts in the US, 477 (8.9%) have made that achievement.
In contrast with the leading enterprises in the US, most Chinese industrial leaders, benefiting from existing corporate competitive advantages and dividend brought about by high market demand, have developed from the era of shortage economy right when the reform and opening up started. In the future, as domestic industries become increasingly concentrated, the market shares of high-quality enterprises will also increase. In the next round of economic expansion, Chinese enterprises with market value of over USD 10 billion are expected to come forth continuously.
Nonetheless, with current market conditions, as new business patterns constantly emerge with the rise of the internet and mobile internet, the environment for competition which enterprises are facing is becoming increasingly intense. On this account, to profoundly understand the rules of capital market and effectively utilize various kinds of financial tools will become a critical factor for leading enterprises to adapt to external competition and make a great leap towards a market value of 10 billion yuan.
In August, JD Capital invited representatives from many invested companies to join the 16th Session of JD Business School successively held in Beijing, Shanghai, Shenzhen and Chengdu, where participants discussed different corporate financing modes and relevant strategies based on the real situation of enterprises.
PLUS @ Shanghai: High-quality capital is an excellent partner in corporate development.
As a famous comprehensive provider of marketing services, PLUS holds many marketing service companies, with well-known customers including P&G, Mars, Danone, Dumex and Coca Cola. A fund managed by JD Capital invested in the company in 2014.
Having reached investment agreement with JD Capital in 2014, the investment has contributed to the company’s development from many perspectives.
First, the internal corporate governance has been more standardized. Of course, standardized governance requires for a higher cost, which in turns calls for careful consideration by entrepreneurs.
Second, when the enterprises become more confident with capital support, they will be able to speed up their business development. So far, we are capable of launching a serious of campaigns simultaneously in 500 cities, and the number of our formal employees has exceeded 10,000.
Third, the A-round investment can be seen as a foundation for the B-round and C-round that are both expected to be completed by next year.
Fourth, the enterprises have accelerated their deployment along the industry chain. Instead of thinking about this after getting listed, we have already set about deploying before the IPO.
Fifth, the innovation and R&D capacity have been improved, and the cost and capital input has laid the foundation for the company’s future growth.
Sixth, the introduction of capital not only helps us realize sustainable development, but delivers continuous returns to our shareholders. This is also an opportunity offered by the capital for both the company and its shareholders to make a profit.
Mychebao @Shanghai: Define the financing objective and purpose at different stages, and pursue further development by internal improvement
As an C2R (retailer) e-commerce trading platform for second-hand cars, Mychebao is dedicated to preparing such industry infrastructure as vehicle condition, pricing, finance and logistics by digitalizing the industry, with an aim to establish the O2O automotive e-commerce trading platform combining internet and mobile internet with offline infrastructure. A fund managed by JD Capital invested in the company in 2015.
For enterprises, the first and foremost is to define financing objectives, i.e. why money is needed and what to achieve with the money received. With such objectives, we shall succeed in each round of financing. After receiving the fund, we must come up with relevant implementation plan, e.g., what is necessary for us to accomplish if we only have 12 months? This requires us to fully know about our rivals and their periodical objectives, and put forward differentiated and targeted market strategies. With these executive strategies, we shall make it in our C-round financing.
The introduction of capital necessitated internal development. I believe, out of the confidence in our strengths, Mychebao will definitely become the first profitable second-hand car company ever in Chinese history. This is the basis for securing our next round of investment. In the future, automotive trading must go global, rather than purely local. Our corporate vision is to become a worldwide automotive trading platform that brings real and extreme experience of automotive trading to our users. Capital shall be of great importance for our blueprint to come true.
Boram @Shanghai: Premiums come from the enhancement of corporate value, and no financing hindrance exists for excellent enterprises
Boram, listed on the NEEQ in 2015 (code: 835392), mainly deals in asset operation and commercial real estate management, including the planning, transformation, investment attraction, operation and management of such commercial real estate as community commercial complex, office space and creative industry centers. A fund managed by JD Capital invested in the company in 2015.
Many view that the NEEQ lacks in liquidity in terms of its withdrawal mechanism. For investors, possible ways include nothing more than withdrawal with premium, withdrawal by buy-back and temporary non-withdrawal. Among these, withdrawal with premium is one that everyone desires, whose core essence is the company’s development. It is the same for the main board, the NEEQ and non-listed companies: the only thing matters is time.
Of course, we have made some creative designs. Enterprises need extensive M&A projects on one hand, and rapid yet intensive capital development on the other. Therefore, we set up separate M&A funds with external low-cost fund for the conduction of acquisition projects. Through such cooperation, the holding cost of low-cost fund was covered by rent. Originally, there was time cost for the withdrawal after buying in, but by cooperating with us, such cost can be saved and higher premiums are expected to come. In the future, it is possible for us to resolve the problem of capital withdrawal based on its way of private placement. Therefore, when designing the financing mode, we are also considering the way of withdrawal.
LianJiaXiang Technology @ Shenzhen: Financing before and after the IPO calls for systematic participation by all
LianJiaXiang, as a well-known cable provider in the industry, is dedicated to the R&D, production, sales and service of specialized cable for intelligent systems. A fund managed by JD Capital invested in the company in 2011.
Since 2015, we have gone through the marketing assistance period and completed works of annual report preparation. During this process, we have the following feelings:
First, corporate culture is of vital importance in the preparation for listing. On the one hand, employees should make the listing preparation part of their daily work; on the other hand, each department should designate an executive or contact person, so as to facilitate inter-departmental coordination.
Second, in the listing process, the company’s business operation should be standardized, with attention to cost control. In the sales and collection procedure, top-down interaction has to be formed to promote standardized operation of the company. When designing financial indicators, the financial department shall also regulate the procedure of budget control. Besides, the procedure of fund planning and risk control includes two aspects: one is fund preparation, or the financing plan; the other is to control the business and endurance capacity from the perspective of risk control.
Haifa Shipping @ Shenzhen: For entity companies, the NEEQ is an ideal financing platform
Haifa Shipping went public on the NEEQ in 2015 (code: 832143). The company is devoted to water transportation between Hong Kong and Macau, oil product carrier and chemical carrier transportation in coastal areas, middle and lower reaches of the Yangtze River and inland waterway in Guangzhou as well as domestic water transportation agency and shipping agency. A fund managed by JD Capital invested in the company in 2011.
The NEEQ is an ideal platform. Haifa Shipping finished its shareholding reform early in 2011, with the intention of being listed on the main board. However, due to its long-waiting period, the company filed application and finally got listed on the NEEQ with the support from JD Capital.
In less than one year after listing, we completed our private placement. From last May to this January, our debt ratio decreased from over 30% to 10%, and our profit doubled, generating leaps and bounds development for the company. As we are a traditional company entity with heavy assets, the financing opportunity from the NEEQ changed our future.
Monarch @Chengdu: Financing is only a start, and sustainable and stable business operation is more important
Listed on the Shenzhen Stock Exchange in 2016 (code: 002798), Monarch is one of the producers of acrylic sanitary wares with the longest history and the most complete range of products in China and one of the largest producers of sanitary wares in the Southwest region. A fund managed by JD Capital invested in the company in 2011.
Despite twists and turns in its listing process, Monarch successfully went public. Here are four of our most impressive feelings:
First, the enterprise should have the capability of sustainable and stable business operation. On the one hand, Monarch has been dedicated to sanitary ware production for 20 years, developing strong resistance to market fluctuations; on the other hand, we are not radical in the listing process, with a sound financial structure and sufficient cash flow.
Second, financial management has to be standardized. Some enterprises tend to polish their financial statements with some tricks. However, after the CSRC’s establishment of the verification system that focuses on information disclosure, financial fraud will trigger enormous risks.
Third, the team responsible for IPO should have perseverance, for there are many difficulties involved in the listing process. Many enterprises wavered at last may transfer to the H-share market. In fact, as long as you persist, and no problem exists with your enterprise and operation quality, you will finally make it.
Fourth, stable cooperation has to be maintained with your partners, including securities companies, lawyers and accountants. During our listing process, our sponsor institution, sponsor and relevant staff remained unchanged, and some partner institutions even know the enterprise better than our senior executives do. This has enabled us to make rapid and accurate responses amid each of major fluctuation.
Dowell @Chengdu: A clear and competitive development strategy is key to obtaining financing
Dowell, listed on the Shenzhen Stock Exchange in 2016 (code: 300535), is a self-owned Chinese brand in leather chemicals, with 9 patents for one invention, 29 patents for utility models, and national recognition of new high-tech enterprises. A fund managed by JD Capital invested in the company in 2010.
Dowell used to engage in trade before 2007, when most trading agents like us had no pricing power and might be edged out at any time, which was highly to the disadvantage of sustainable corporate development. Thus, we carried out two strategies. One was to adjust our main business from trade to production from 2007, and the other was to strive for listing. Before going public, we introduced strategic investors who gave us the concept of capital market in our cooperation.
In the listing process, we believed that in order to achieve success in the capital market, the enterprise has to be resistant to strikes. Besides, the enterprise has to be capable of keeping supporting itself. As China’s economy is still undergoing major fluctuations, the enterprise will lack a solid basis without the capability of long-lasting profitability.
- Jiuding Group
- JT Asset Management
- JX AMC