Hutchinson Case

EXECUTIVE SUMMARY In order to keep its actual growth rate according to its capital commitments, HWL has to face the decision on how to fund its future financing needs, choosing among the options of issuance of equity or bonds (Straight, Yankee or Eurobonds). After having analysed the capital structure of HWL, which we assessed as not heavily leveraged combined to the probable S&P’s BBB rating, we regard as best available solution a mixed issuance of equity and Eurobonds. This alternative could avoid excessive risk-taking and a credit downgrading, ensuring enough flexibility, necessary for the business, and versatility to unexpected future events and needs. SUMMARY OF FACTS HWL requires HK$7.8 BN of new capital in the coming year. By 1996, HWL has a market capitalization of HK$202,800 M, being the second largest company based in HK with diversified global interests. HWL relies more heavily on internally generated funds. However, short term financing and regulations as to the maximum amount banks can lend constrain long term projects and many HK firms are recently showing interest in financing opportunities through the highly-liquid European and American markets. HK$39 BN are required over the next five years to maintain the present growth rate. The possibility of alternative financing methods has to be analysed among: bank financing, equity and bonds. Still, bank financing is restricted to a maximum of 5 to 7 years, while HWL's objective is to raise funds for 10 years and beyond. HWL has never issued bonds and there are three different options to be taken into consideration: a straight bond issue, Eurobonds or Yankee bonds. HWL is waiting for its credit rating in order to proceed with the decision among the various financing possibilities. STATEMENT OF PROBLEM The decision problem of HWL concerns dealing with the alternative options of financing for the upcoming years: Issuance of equity or of debt through Straight bonds, Eurobonds and Yankee bonds. In order to do...