Hutchison Whampoa Limited Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

Situation Analysis

In current situation Hutchison Whampoa Limited is under consideration to raise funds of $500 million to meet its current and future financing needs. The company has a diversified portfolio of its business that consists of; property development and holding, port and related services, retail business, telecommunication, energy and infrastructure, and other investments. Due to diversification in many industries the company has a competitive advantage over its competitors.

The size of the company is very large due to its extensive structure, the total market capitalization of the company is $26 billion, making it one of the top companies operating in Hong Kong. The company is able to generate a net profit of HK$9.6 billion, with HK$ 2.5 EPS, the company is able to generate good returns for its shareholders therefore the stock prices of the company has increased from HK$ 14.8 (in 1991) to HK$ 47.1 (in 1995) as per the maximum price trading stock price for the relative years (Exhibit 1).

The profitability, efficiency of the company has increased, as the results in exhibit 1 shows that the profits are increasing and the average growth rate of increase in profitability is 21.8% that is better than the growth of revenues i.e. 16% only. It has successfullygenerated a net profit margin of 27.3% (Appendix 1). It is able to generate good profits as the time passes because the margins of the company are increasing due to its efficiency to expand the business and increase revenues along with the cost savings.

The net profits of the company are attractive due to associated company operations, but its operating profits are not so attractive as compared to the profits of its competitor Swire Pacific Limited (Exhibit 4).

The company has currently raised a long term debt of HK$ 26.2 billion as per its financial statements and the total shareholders' equity is HK$ 58.8 billion (Exhibit 5).The company is already geared as compared to its competitors, the debt ratio of its competitors is less due to the nature of Hong Kong based companies to raise equity and use internal funds for the expansion plan.

The EBIT, EBITDA and free cash flow ratio are lower than those industry competitors 3 companies, but its return of capital is higher than these three firms as the return on equity of Hutchison is best from as compared to its three peer firms. This indicates that the company is operating effectively and its profits are attractive for its shareholders due to higher return on equity for those peer companies (Exhibit 6).

The company’s total debts are 44.8% that are highest ratio of debts to capitalization as compared to its peer firms, it shows that the company faces financing difficulties for its expansion therefore it requires more $500 million to maintain current and future needs of financings (Exhibit 6).

Assumptions and Missing Information.

In this case the missing information is about the exchange rate between US$ and HK$, the rates can be helpful to get the appropriate information about the exchange rate and the amount to raise in HK$ can appropriately derive.

It is also assumed that the movement in US$ and HK$ is similar therefore the exchange rate of US$ over a period of repayment does not affect the exchange rate, therefore the exchange risk of forex does not affect the company due to the same movement in forex for both currencies.

In this case the missing data are also related to the other bond markets of the World like UK, Germany, France, Japan and Italy. The information about the tradable Eurobonds in other currencies like HK$ and Japanese Yen and even Euro or GBP. The exchange rates and relative strengths of the currencies can give benefit to the company to choose appropriate one. The company may be willing to accept the forex risk in other currencies that are considered to be relatively weaker from US$ and exchange rate benefit can be achieved through this arrangement.

The exchange rates and relative information are required to calculate the extra benefits through forex can be achieved by the organization.

In this case it is considered that the S&P ratings are based upon the debt structure of the company because it is the finest ways to calculate the ratings of the company because if the other or more than one means of rating measure is used then this may create difficulties to derive the true ratings of the company and its bonds. In this case it is also assumed that the S&P is going to also assume the debt structure in order to give ratings to Hutchison Whampoa Limited......................

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