Raising Capital in the Global Economy

1. Would it be a good move for CF Industries Holdings to list its stock on Chinese stock exchanges? What are the possible advantages and disadvantages of such a move? Based on your analysis, what would you recommend to financial managers of CF Industries Holdings?
Based on CF Industries Holdings’ business operations, it can be considered a good move for the company to list its stock on Chinese stock exchanges. Notably, the company is a global leader in the transformation of natural gas into nitrogen. In particular, the chemical procedures that the organization utilizes make certain that there is nitrogen necessitated to support life on earth and this encompasses having products that eradicate harmful discharges from industrial activities. The company’s operations is a good prospect for foreign investors in China, a nation that is presently faced with problems of plenty of emissions in its environment from industrial actions. Therefore, by listing its stock on the Chinese stock exchanges, the company is bound to fine and attract several investors who would like to be shareholders to the organization (CF Industries Holdings, 2017).
There are possible advantages of cross-listing for CF Industries Holding and having its stock listed on Chinese stock exchanges. One of the key advantages of cross-listing encompasses the financial increases. By listing into the Chinese stock exchanges the company will have it as a source of financing and raising capital funds at a cheaper cost in comparison to debt financing. This is largely for the reason that the stocks of CF Industries Holdings will be more accessible to foreign investors, which might be otherwise limited owing to global investment obstacles, precluding them from gaining access to certain markets. Therefore, this implies that the company will have additional funds to conduct its business operations and perhaps include aspects such as research and development to augment its status in the market. Another advantage is that CF Industries Holdings will be able to raise its liquidity levels. Basically, this will enable the organization to undertake trading of its shares in several time zones as well as different exchanges. This will augment CF Industries Holdings’ liquidity and increase its capability to raising capital (Ibrahim and Youssef, 2013). An additional advantage encompasses marketability. Through this listing in China, the company will increase its stakeholders, which makes its securities perceptible in the global market. Moreover, the CF Industries Holdings brand will be recognizable to financiers and customers of the foreign countries, generating novel channels of distribution and export prospects (Ibrahim and Youssef, 2013).
On the other hand, there are disadvantages to this move. One of the disadvantages is that capital transactions taking place in China continue to undergo particular limitations. In addition, the level of authorization fluctuates based on its total investment amount. Aside from the minimum capital requirements set in accordance to company law in China, there are distinct requirements for commanding higher minimum capital requirements. This is purposed to preclude organizations being instituted which are undercapitalized and rely on significant debt. Another limitation is stringent monitoring of borrowing restrictions. Foreign company are not permitted to raise finances on the Chinese capital markets through the issuance of corporate bonds or commercial paper, and therefore the company will be forced to borrow such finances from a bank (Sekine, 2008). There is also the disadvantage of registration foreign debt, which bring about additional complication with respect to monitoring of borrowing limits. In the nation, foreign debt is monitored by some authorities which is reliant on the borrower (Sekine, 2008). As a result, based on my analysis, I would recommend to financial managers of CF Industries Holdings to go ahead and list its stock on Chinese exchanges.
2. Is it generally worthwhile for a non-U.S. company to get listed on a U.S. stock exchange? What are the advantages? What are ADR's? Based on your analysis, what would you recommend to a non-U.S. corporation?
It is generally worthwhile for a non-U.S. company to get listed on a U.S. stock exchange. The United States is one of the biggest business expanses in the world with numerous transactions taking place. One of the advantages encompasses brand recognition. In particular, the two key exchanges in the U.S, being NASDAQ and NYSE are distinguished and prominent. By becoming listed, this can facilitate the companies to obtain new investors in an easier manner and stimulate sureness in their general market position. A second advantage is diversity. Notably, the NYSE trades greater United States equity volume in comparison to any other exchange group. On the other hand, NASDAQ has over 3,000 listed companies ranging from more than fifty nations with a market value that surpasses 8 trillion dollars. Moreover, there is the benefit that the networks of the exchanges in the United States traverse all sectors and industries (Ernst & Young, 2014).
American depositary receipts (ADRs) are stocks that trade in the United States but signify a distinct number of shares in a foreign company. It is imperative to note that ADRs are purchased and retailed on American markets similar to regular and common stocks, and are thereafter issued in the United States by a broker or a bank. It is imperative to note that ADRs were initiated into the market owing to the intricacies encompasses in purchasing shares in foreign nations and the challenges linked with trading at dissimilar prices and values of currencies. As a result, banks in the U.S basically buy a great deal of shares from the firm, bring them together into groups and thereafter re-issue them on the stock exchange. In response, the foreign firm is mandated to give comprehensive financial data and information to the guarantor bank (Investopedia, 2017). In conclusion, based on the analysis conducted, I would recommend to a non-U.S corporation to highly consider listing its stock in the United States exchanges owing to the numerous benefits it is bound to experience.
3. Is raising money in U.S. stock markets more - or less - difficult than in the rest of the world? Answer this question in brief
I believe raising money in the present day in the U.S stock markets is less difficult in comparison to the rest of the globe. In particular, the stock market in America since the financial crisis in 2008 has yet to completely recover. The main impact of the crisis was the decline of the stocks in the market, which adversely impacts the investors with respect to investment. In general, the downside to this is that the stock market’s level of production is significantly lower than its normal potential and as a result giving rise to investing being below par. On the other hand, stock markets in the rest of the world have been comparatively having better investment performances. Stock markets in nations such as Germany, Brazil, France and Finland have been relatively booming, appealing to numerous companies and investors. Taking this into consideration, it is largely challenging for companies to raise funds in the American stock exchange compared to the other ones across the world.
Long-Term Debt Financing
4. Based on the above information, calculate the expected cost of long-term debt financing with the Chinese Yuan Renminbi (¥) and the U.S. dollars ($).
Based on your analysis and findings, what would you recommend to CF Industries Holdings Inc.? Should CF Industries Holdings Inc. issue bonds denominated in U.S. dollars or Chinese Yuan Renminbi? Explain your reasoning.
End of Year
Exchange rate of Chinese Yuan Renminbi (¥)

1
$.15

2
$.16

3
$.14

4
$.17



i. Calculation of bond sale in China

Total borrowings in Chinese Yuan Renminbi (¥): $8,000,000/.16 = ¥50,000,000.
Coupon payment = Total borrowing x Coupon rate
= ¥50,000,000 × 0.06
= ¥3,000,000
 
Year 1
Year 2
Year 3
Year 4
Total Cost (Yrs:1+2+3+4)

¥ Payment
3,000,000
 3,000,000
 3,000,000
 3,000,000
 12,000,000

Exchange rate
0.15
0.16
0.14
0.17
 

Payment in US $
450,000.00
 480,000
 420,000
 510,000
 1,860,000



ii. Bond sale in USA
Total borrowings in U.S. dollars ($): $8,000,000
Coupon payment = Total borrowings x Coupon rate
= $8,000,000 × 0.08 = $640,000

Total Payment to bondholders in year 4 = Coupon payment for year 4 in U.S. dollars ($) + Total borrowed amount in U.S. dollars ($)
= 640,000 + 8,000,000
= $8,640,000
Total costs of borrowing from bond sale in USA = Total coupon payments for 3 years + Total payment in year 4
= (640,000 × 3) + 510,000
= $2,430,000
Gain (Loss) from bond sales in China = Total Cost of Borrowings from bond sales in USA - Total Cost of Borrowings from bond sale in China
= $2,430,000 - $1,860,000
= $570,000
On the basis of my analysis and findings obtained, my recommendation to CF Industries Holdings is to go ahead with the issuance of the bond. In particular, the company should issue bonds denominated in U.S. dollars rather than Chinese Yuan Renminbi (¥) denominated bond because it gives rise to a positive return for the organization.






References
CF Industries Holdings. (2017). Who We Are. Retrieved from: https://www.cfindustries.com/who-we-are
Ernst & Young. (2014). The benefits of listing on US exchanges. Retrieved from: http://www.ey.com/Publication/vwLUAssets/EY_-_The_benefits_of_listing_on_US_exchanges/$FILE/EY-The-benefits-of-listing-on-US-exchanges.pdf
Ibrahim, A., Youssef, M. (2013). The Rationale Behind Cross-Listing: Its Implications On Corporate Governance. Retrieved from: http://www.tamimi.com/en/magazine/law-update/section-5/september-3/the-rationale-behind-cross-listing-its-implications-on-corporate-governance.html
Investopedia. (2017). ADR Basics: What Is An ADR? Retrieved from: http://www.investopedia.com/university/adr/adr1.asp
Sekine, E. (2008). Listings by foreign-invested companies on mainland Chinese stock exchanges once again in the limelight. Nomura Capital Market Review, 11(3), 8-23. Retrieved from http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1289226