solution - 1 Introduction In this paper we are going to...

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Introduction In this paper we are going to discuss the Initial Public Offer (IPO) of the two big companies of China, viz., New World Department Store China Limited (NWDS) and South China Locomotive and Rolling Stock Corporation (CSR). While the former had its issue in the year 2007, the later one brought its IPO in the year 2008. The two companies are under study for our case because of the difference in the character of the two companies. While NWDS is a non H-share company, CSR is an H-share company and that is why there is a difference between the two. In the coming sections we shall be discussing about the companies under study and the IPOs that they had launched. H-share and Non H-share Before starting our analysis about the two companies, we need to understand the basic difference between the two companies and that difference is due to H-share and non H-share companies. In the following paragraph, we shall be trying to understand the difference between the two. H-Shares A share of a company incorporated in the Chinese mainland that is listed on the Hong Kong Stock Exchange or other foreign exchange. H-shares are still regulated by Chinese law, but they are denominated in Hong Kong dollars and trade the same as other equities on the Honk Kong exchange. H-shares on the exchange are automatically included in the Hang Seng China Enterprise Index, provided that they maintain the Hong Kong exchange regulatory requirements. H-shares are available for more than 90 Chinese companies, giving investors at least some access to most of the major economic sectors such as financials, industrials and utilities. In 2007, the Chinese government decided to allow mainland investors to invest in the Hong Kong exchange, which greatly increased the demand for H-shares, as mainland investors were previously forbidden from investing in the exchange. China still offers A-shares in many of the same companies, but only mainland residents can invest in them. Non H-share Shares in mainland China-based companies that trade on Chinese stock exchanges such as the Shanghai Stock Exchange and the Shenzhen Stock Exchange. A-shares are generally only available for purchase by mainland citizens; foreign investment is only allowed through a tightly-regulated structure known as the Qualified Foreign Institutional Investor (QFII) system. Most companies listed on Chinese exchanges will offer two shares classes: A-shares and B- shares. B-shares are quoted in foreign currencies (such as the U.S. dollar) and are open to both domestic and foreign investment (provided that locals set up a foreign currency account), while A-shares are only quoted in Chinese renminbi. A-shares experienced explosive growth in the 2005-2007 periods as restrictions preventing 1
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investment by Chinese citizens slowly began to peel away. In fact, demand was so high for A-shares that they would trade for much higher valuations than what the same stock could be purchased for on a different exchange. The Peoples’ Republic of China is working to blend the two classes of stock together, and
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This note was uploaded on 05/13/2010 for the course MECH 17657 taught by Professor Ravikant during the Spring '10 term at Indian Institute of Technology, Delhi.

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solution - 1 Introduction In this paper we are going to...

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