Prof.

Florencio Lopez-de-Silanes

Case: Huaneng Power International INC.

1. You have been hired as an international investment banker by a large U.S. institutional investor who is considering purchasing HPI stock. Provide an analysis of i) China as an investment destination, ii) key success factors, and iii) HPI’s strengths and weaknesses. 2. HPI wants to access financial markets. What are the options available to the firm? Provide pros and cons of available options in particular, deal with: a. Debt markets. b. Equity markets: i. In particular, what type of listing is suitable for Huaneng to pursue? i.e. domestically within China and internationally, listing in Hong Kong, London and the US. (In the US between different ADR levels) ii. What are the benefits for a non-US firm that decides to list on a US exchange? 3. What is the right cost of capital for the various Equity options? Measure and explain the cost of capital for each equity option. 4. Now imagine you are HPI’s investment banker and you are proposing an ADR on the NYSE. You have to convince HPI’s bearer of the price at which they should issue the shares? What is a reasonable share price? Why? 5. What implementation strategy would you suggest? Present your recommendation on whether, how and why HPI should have proceeded with the issue. 6. As the investment banker of the institutional investor, would you have recommended to buy stock in this company at all? At what price? Why? 7. Given the current international investor environment (and not in 1994), what steps could HPI and the Chinese government take to make it easier for firms from China to raise capital internationally?

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