Hutchison Whampoa Limited - Yankee Bond Offering
George Andrew Karolyi
Cornell University - Johnson Graduate School of Management
University of Alabama at Birmingham - Department of Accounting and Information Systems
Subject Areas: Global financing strategies; Pricing new bond issues; Political risk.
Case Setting: June 1997, Hong Kong.
In June 1997, Hutchison Whampoa Finance Ltd. was preparing the offering circular for a US$1 billion bond offering. Until now, the company had drawn on short- and medium-term loan facilities underwritten by banking syndicates for external financing. But with Hutchison Whampoa's diverse and expanding operations, the needs of the group were beginning to extend beyond the local banking community. The need for long-term financing was also prompted by the recent reorganization of the Cheung Kong (Holdings) group which resulted in Hutchison Whampoa acquiring an 84.58 per cent interest in Cheung Kong Infrastructure. Moreover, the time was ripe to increase the ratio of fixed-rate funding at prevailing yields which were currently attractive. But Group Managing Director, Canning Fok, and Group Finance Director, Bill Shurniak, both wondered what the reception would really be for a Hong Kong-based bond issue at the time of the Handover to China.
The primary objective of the case is to expose students to the importance of international financial markets for long-term corporate financing. The students learn about the institutional aspects of the global debt issuance process, in general, and the U.S. Yankee bond market, in particular. Another objective of the case is to evaluate factors that may affect the pricing of bond offerings, such as maturity, credit rating and after-market liquidity in the international context. A final objective is to highlight how political factors can influence the outcomes of securities offerings in foreign countries.
JEL Classification: G31, G32
Date posted: July 30, 1999