FIN 400 Final Quiz with Questions and
Answers
What is the case about? ANSWER Alibaba must decide where to issue bonds and at what
price
Should Alibaba issue bonds in the US or China? ANSWER US:
-in 2014, US issued a record-breaking amount of global bonds
-low default rates
-bond market in US is more developed
-IPO made Americans aware of the company
-US rating agencies give it investment grade, more reliable than China
-treasury bonds at lows so corporate are more attractive
China:
-more brand awareness
How does financing with bonds differ from Alibaba's previous forms of debt financing with
syndicated loans? ANSWER -syndicated loan funding is private and the funding comes from
a group of investment banks, offers more flexibility than bonds
bonds:
-cheaper interest rates
-more investors to choose from
-bond/stock IPO makes bigger splash than loan
-advantages to firms from different countries, get to learn how pricing works
Discuss the different risks Alibaba is facing. ANSWER -corporate governance: there are
many partners and shareholders don't have a say
, 1) dual class structure: partners have a stake in the business but problem if another one comes
in w/ less business knowledge
2)VIEs: set up vehicle outside of China so foreigners can invest to deal w/ restrictions but
vehicles may be restricted in the future
-China's FX rate: issue of having revenues in yuan but obligations in USD (if dollar weakens,
good for Alibaba)
-country risk: low risk in China but if issue outside may be a country premium in bond price
-risk that are low: clientele risk that they dont know the company, business risk, and financial
risk
Is this a good time for a company to issue bonds? ANSWER YES:
-rates are low so it is good to take advantage before fed raises them
-IPO so awareness of company is high
-the company is growing through investments in other companies, need funds (ie ANT
financial system)
How would you price Alibaba's bonds? ANSWER -diff. because it is a high tech company
and these often face large swings in valuations
-country premium based on China's risk
-look at comparison of bond prices for other similar companies
-ie Ebay with a 1-5% spread
What was learned from the Alibaba case? ANSWER -where/when to issue bonds
-risks
-pricing strategies
Fuyao Case
Answers
What is the case about? ANSWER Alibaba must decide where to issue bonds and at what
price
Should Alibaba issue bonds in the US or China? ANSWER US:
-in 2014, US issued a record-breaking amount of global bonds
-low default rates
-bond market in US is more developed
-IPO made Americans aware of the company
-US rating agencies give it investment grade, more reliable than China
-treasury bonds at lows so corporate are more attractive
China:
-more brand awareness
How does financing with bonds differ from Alibaba's previous forms of debt financing with
syndicated loans? ANSWER -syndicated loan funding is private and the funding comes from
a group of investment banks, offers more flexibility than bonds
bonds:
-cheaper interest rates
-more investors to choose from
-bond/stock IPO makes bigger splash than loan
-advantages to firms from different countries, get to learn how pricing works
Discuss the different risks Alibaba is facing. ANSWER -corporate governance: there are
many partners and shareholders don't have a say
, 1) dual class structure: partners have a stake in the business but problem if another one comes
in w/ less business knowledge
2)VIEs: set up vehicle outside of China so foreigners can invest to deal w/ restrictions but
vehicles may be restricted in the future
-China's FX rate: issue of having revenues in yuan but obligations in USD (if dollar weakens,
good for Alibaba)
-country risk: low risk in China but if issue outside may be a country premium in bond price
-risk that are low: clientele risk that they dont know the company, business risk, and financial
risk
Is this a good time for a company to issue bonds? ANSWER YES:
-rates are low so it is good to take advantage before fed raises them
-IPO so awareness of company is high
-the company is growing through investments in other companies, need funds (ie ANT
financial system)
How would you price Alibaba's bonds? ANSWER -diff. because it is a high tech company
and these often face large swings in valuations
-country premium based on China's risk
-look at comparison of bond prices for other similar companies
-ie Ebay with a 1-5% spread
What was learned from the Alibaba case? ANSWER -where/when to issue bonds
-risks
-pricing strategies
Fuyao Case
