Going public provides benefits like increased capital, improved credit terms, and public valuation. However, it also has disadvantages such as high costs and time requirements. Alternatives include reverse mergers which bypass the lengthy IPO process. When going public in China, companies must meet requirements like profits over 3 years. Reasons for going public include raising capital for growth while privatization transfers ownership from public to private sectors.

1. IPO Listing Assessment and
Privatization in China

2. Going Public and It’s Benefits
• Increased Public Awareness
• Gain in capital
• Improved credit terms
• Vehicle for Compensation
– The public company could now offer stock to its
employees and management
• Provides a public valuation of a business
– Makes it easier to enter M&A deals
Refer to page 13 for more information

3. Is Going Public Always The Best
Option?
• Initiating an IPO could have a plethora of
disadvantages:
– Erroneous and Time Consuming
– Shareholder Value could be scrutinized against
competitors
– A company’s stock price will turn out to be the
detrimental element in making decisions
– The Tyranny of Quarterly Targets
Refer to page 14 for more information

4. Any Alternatives?
• Reverse Mergers
– The acquisition of a public company by a private
entity
– Why?
Bypass Lengthy process of going public
Less interference from investors
– Mostly occurred in the past
Refer to page 15 for more information

5. Going Public in China
• When is a company considered ‘ready’ to go public?
– Clear shareholder structure
– No major dispute on the title of key assets
– Profits for the previous three years must not be less than
RMB 30 million
– No principle change in operations for the previous three
years
– No indication of any risk towards repayment of debt

6. Tax Rules and Regulations
PRC Taxation System
Tax on Income
Tax on Transactions
Tax on Specific Objectives
Tax on Resources
Tax on Property
Tax on Behavior
Tax levied by Customs
Tax levied by Financial Department
– Refer to page 16 for more information

7. Reasons for Going Public
• Raising Capital through selling
equity and issuing bonds
• Growth
• Expansion
• Retiring existing debt
Refer to page 17 for more information

8. Privatization
• The process of transferring ownership of a
business from the public sector to the private
sector
• There are several forms of privatization:
– Share Issue Privatization
– Asset Sale Privatization
– Voucher Privatization
– Privatization from Below
– Refer to page 18 for more information

9. Advantages of Being Private
• The Government plays no role in the
functioning of the firm
• Puts a higher emphasis on customer service
• Competition in Privatization increases
differentiation
• Refer to page 19 for more information

10. Disadvantages of Being Private
Less Lack of
transparency financing
to the public options
• Refer to page 20 for more information

11. Privatization Case Study: Harbin
Electric
• Listed in the US in 2005 by a reverse merger with a shell
company called Torch
• Why did it decide to go private?
Although it reported record revenues in 2010, the
chairman of the company felt that Harbin Electric was
overvalued and could not meet future expectations
Accused of misrepresenting information on the SEC
filings which led the stock price to fall dramatically

12. Presentation Notes
Presentation and additional
following points

13. Notes on ‘Going Public and it’s Benefits’
• By going public, a company receives much more public attention and even more
everyday by being traded on the stock market. IPO’s often generate publicity by
making their products known to a new group of potential customers.
• The core financial benefit from going public is that the company is able to raise
capital. Capital can be used to fund research and development, fund capital
expenditure or even used to pay off existing debt.
• A business that goes public may also find it easier to obtain capital for future
needs through new stock offerings or public debt offerings.
• Yet another advantage of going public involves the ability to use stock in creative
incentive packages for management and employees. Offering shares of stock and
stock options as part of compensation may enable a business to attract better
management talent, and to provide them with an incentive to perform well.

14. Notes on ‘Is Going Public Always The Best
Option?’
• The biggest disadvantages involved in going public are the costs and time involved.
Experts note that a company's management is likely to be occupied with little else
during the entire IPO process, which may last as long as two years. The business
owner and other top managers must prepare registration statements for the SEC,
consult with investment bankers, attorneys, and accountants, and take part in the
personal marketing of the stock. Many people find this to be an exhaustive process
and would prefer simply to run their company.
• Another disadvantage is that going public is extremely expensive. In fact, it is not
unusual for a business to pay between $50,000 and $250,000 to prepare and
publicize an initial public stock offering.
• Whether one likes it or not, analysts expect the company to put out numbers that
shows how it will perform in the coming quarters. Whatever numbers a company
gives, it must meet them because the market hates surprises.

15. Notes on ‘Any Alternatives?’
• A reverse takeover or reverse merger is the acquisition of a public company by a private
company so that the private company can bypass the lengthy and complex process of
going public. The transaction typically requires reorganization of capitalization of the
acquiring company.
• In a reverse takeover, since the deal rests solely between those controlling the public
and private companies, market conditions have little bearing on the situation. Therefore,
investors do not usually interfere in the functioning of the firm.
 However by 2007, the reverse mergers trend had stopped for several reasons. Some of
which include:
 Company Assets residing in China lead to investors in the United States not being
able to understand the assets.
 The investors in the United States rarely speak to the management in China. They
only contact the unreliable “IR” representatives and are hence not being able to
understand the goals of the firm.

16. Notes on ‘Tax Rules and Regulations’
Tax on Income
 Corporate Income Tax (CIT)
 Individual Income Tax (IIT)
Tax on Transactions
 Value Added Tax
 Consumption Tax
Tax on Specific Objectives
 Land Appreciation Tax
Tax on Resource
 Resources Tax
Tax on Property
 Real Estate Tax
Tax on Behavior
 Vehicle and Vessel Tax
Tax Levied by the Customs
 Custom Duties
Tax Levied by Finance Department
 Deed Tax

17. Notes on ‘Reasons for Going Public’
• By going public, a company can create a market for its stock. In general, stock in a public company is much
more liquid than stock in a private enterprise. Liquidity is created for the investors, institutions, founders,
owners and venture capital professionals. Investors of the company may be able to buy or sell the stock
more readily upon completion of the public offering. This liquidity can elevate the value of the
corporation.
• By offering stock for sale to the public, a company can access a substantial source of corporate funding. If
a company needs to raise capital, it can sell stock (equity) or it can issue bonds(debt securities). An initial
equity offering can bring immediate proceeds to a company. These funds may be used for a variety of
purposes including; growth and expansion, retiring existing debt, corporate marketing and development,
acquisition capital and corporate diversity.

18. Notes on ‘Privatization’
• Privatization is the incidence or process of transferring ownership of a business, enterprise, agency, public
service or property from the public sector (the state or government) to the private sector (businesses that
operate for a private profit) or to private non-profit organizations.
• Share Issue Privatization – The selling of shares on the stock market
• Asset Sale Privatization – Selling of an entire organization to a strategic investor, usually by auction.
• Voucher Privatization – Distributing shares of ownership to all citizens at an extremely low price.
• Privatization from Below – Start – up of new private businesses in formerly socialist countries.

19. Notes on ‘ Advantages of Going Private’
• Lack of Government Intervention: It is argued governments make poor economic managers. They are
motivated by political pressures rather than sound economic and business sense. For example a state
enterprise may employ surplus workers which is inefficient. The government may be reluctant to get rid of
the workers because of the negative publicity involved in job losses. Therefore, state owned enterprises
often employ too many workers increasing inefficiency.
• Increased Differentiation: Often privatization of state owned monopolies occurs alongside deregulation –
i.e. policies to allow more firms to enter the industry and increase the competitiveness of the market. It is
this increase in competition that can be the greatest spur to improvements in efficiency.

20. Notes on ‘Disadvantages of Being Private’
• Less Transparency: When private companies agree to contracts from the government, especially long-term
ones, the companies can begin to cut corners to increase profits. Unless the contracts include specific
reporting criteria, these businesses' modes of operation may prove difficult to monitor.
• Lack of Financing Options: The greater number of financing options available to public companies are
listed below:
– The issuance of additional stock in a secondary offering
– An exercise of warrants, where stockholders have the right to purchase additional shares in a
company at predetermined prices. When many shareholders with warrants exercise their option to
purchase additional shares, the company receives an infusion of capital.
– Other investors are more likely to invest in a company via a private offering of stock when a
mechanism to sell their stock is in place should the company be successful.