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  • Chinese Debtors Offer Fingers to Loan Sharks

    November 7, 2011: Loan sharks have been a problem in the Western World for centuries. From traditional Vegas sharks to payday lenders, the poor have been subject to atrocities by creditors for years, despite government intervention. The situation today is no better for China's small entrepreneurs. Many businessmen have been forced into bankruptcy recently as local credit has been tightening. Not able to withstand public humiliation, some choose suicide, while others find themselves under the burden of creditors and "tattooed thugs."

    According to a recent Businessweek article, Zhong Mong, a Chinese pharmacy owner, offered his fingers to a group of private lenders because if they repossessed one of his stores, it would be impossible to pay back another 130 small local creditors, many of whom are local friends and neighbors. Zhong had borrowed 30 million yuan or $4.7 million at rates as high as 7% per month to expand his franchise!

    Similar to the U.S., small and medium sized businesses account for 80% of jobs in greater China, but these businesses always find it difficult to obtain local bank financing. Other forms of financing are often much more expensive, leading to complications and often default. Since April, at least 90 CEOs have fled Zhong's city of Wenzhou for the same reason. The 400,000 businesses in the city are facing higher costs because of inflation and soaring black market interest rates because of the sudden credit squeeze. Imagine how fast a business must grow to pay Zhong's 7% monthly interest...


    Black market interest rates have doubled this year, growing faster than local profits. Informal lending has given rise to real estate developers driving prices ever higher, leading to more inflation. Similar problems have also surfaced in the industrial province of Guangdong, to the South.

    Wenzhou is home to 9 million Chinese and produces 90% of China's eyeglasses and lighters. Many residents of Wenzhou take out bank loans at 1% per month and lend out money at 2%+ per month, pocketing the difference. China's official lending rate is only 6.56%, compared to rates between 20-40% that small businesses are charged here.

    Local suicides have prompted Premier Wen to visit the city and pledge to raise bonds to help finance smaller businesses, even if NPLs are higher. Unfortunately for Zhong, it may be too late. He will probably lose his business and will be hired as a paid manager. He and his wife will probably have nothing left.

    If you would like to short Chinese real estate or property developers, a very easy way is to purchase puts on TAO, the Guggenheim Chinese Real Estate ETF.  Please be aware that the ETF has exposure to HK and Macau as well.

    Link: http://leverageacademy.com/blog/2011/11/07/chinese-debtors-offer-fingers-to-loan-sharks/

    Nov 07 9:19 PM | Link | Comment!
  • HCA IPO Rises 4% on Day Dow Falls 228 Points

    HCA Holdings rose about 4.0% in its first day of trading.  This was very impressive, considering the Dow Jones Industrial Average fell 228 points in the same day (3/10/11).  The Dow fell in response to increasing jobless claims, a larger U.S. trade deficit, a larger Chinese trade deficit, and a lower GDP revision in Japan on 3/9/11.  Luckily, HCA was unaffected, which reflects both the strength of the company and its balance sheet.  HCA represents such a large share of the U.S. hospital industry, that institutional money managers probably could not refuse to purchase the security for their portfolios.  HCA's public competitors include CYH - Community Health Systems and THC - Tenet Healthcare Corp.

    According to Bloomberg, "HCA Holdings Inc., the largest publicly traded hospital chain in the U.S., rose 3.9 percent on its first day of trading after completing a record $3.79 billion, private equity-backed initial public offering.

    Nashville, Tennessee-based HCA increased $1.15 to $31.15 at 1:16 p.m. in New York Stock Exchange composite trading, even as rising U.S. jobless claims drove the Dow Jones Industrial Index down 137 points. HCA’s offering sold more than 126 million shares at $30 each, the top of the proposed price range, the company said yesterday in a statement.

    The IPO’s performance on a day when the market is falling reflects both the strength of HCA’s balance sheet and the momentum in favor of private equity-backed deals being brought to market, said Josef Schuster, founder of IPOX Schuster LLC in Chicago. There’s “plenty of liquidity available” for large U.S. deals like this one, he said.

    “The deal underlines the level of confidence among large- cap managers about these type of private equity deals and the for-profit hospital space,” Schuster said in a telephone interview today. “Even with no dividend, investors like the level of cash with this company.”

    For-profit hospitals will benefit as last year’s U.S. health overhaul forces consolidation and cost cutting that may leave non-profit competitors at a disadvantage, said Les Funtleyder, an analyst at Miller Tabak & Co. in New York. Investors are also expecting HCA to be added to stock-trading indexes and buying ahead of that, he said.

    Blue-Chip Name

    “People look at HCA as a blue-chip name in a space they want to get involved in,” said Mark Bronzo, who helps manage $25 billion at Security Global Investors in Irvington, New York, in a telephone interview today. “There just aren’t a lot of names to choose from there.”

    For-profit hospital chains such as HCA depend more on commercial payers and less on government beneficiaries than do nonprofits, which have already seen their revenue reduced by government cutbacks, particularly in Medicaid.

    HCA competitors among for-profit hospitals include Community Health Systems Inc. (NYSE:CYH) in Franklin, Tennessee, and Tenet Healthcare Corp. (NYSE:THC) in Dallas.

    HCA’s offering exceeded the Feb. 10 initial stock sale by Houston-based energy-pipeline company Kinder Morgan Inc., which raised $3.3 billion. Private equity-backed IPOs in the U.S. have gotten a boost this year as the Standard & Poor’s 500 Index rallied to the highest level since June 2008, raising investors’ interest in companies acquired through debt-fueled takeovers.

    ‘Warmer Climate’

    “We have a market that’s more willing to take on risk,” said Alan Gayle, senior investment strategist at RidgeWorth Capital Management in Richmond, Virginia, which oversees $52.5 billion. “This is a much better, much warmer climate for this type of offering.”

    The underwriters may exercise an overallotment option to buy as many as 18.9 million additional shares within 30 days, the company said. HCA sold 87.7 million shares, while existing investors sold 38.5 million.

    Companies owned by private equity investors have accounted for 80 percent of the funds raised in U.S. IPOs since the beginning of the year, and the shares have gained 10 percent on average through yesterday, compared with 4.8 percent for companies not owned by leveraged buyout firms, Bloomberg data show.

    KKR and Bain

    KKR & Co., Bain Capital LLC, Bank of America Corp. (NYSE:BAC) and other owners invested about $5 billion in equity in the $33 billion takeover of HCA. Including debt, it was the largest leveraged buyout at the time.

    In acquiring HCA, KKR and Bain chose a company with steady cash flow and a business that’s protected to a large extent from swings in the economy. Cash flow from operations was $3.16 billion in the year before the 2006 buyout, according to data compiled by Bloomberg. As of Dec. 31, 2010, that number was little changed at $3.09 billion.

    The company offered as many as 124 million shares at $27 to $30 apiece, according to a filing with the U.S. Securities and Exchange Commission. Charlotte, North Carolina-based Bank of America and Citigroup Inc. and JPMorgan Chase & Co. of New York led HCA’s sale. HCA said it will use the proceeds to repay debt."

    The following links will take you to previous articles we wrote on HCA:

    http://leverageacademy.com/blog/2010/04/11/hca-could-have-3-billion-ipo-4-years-after-kkr-bain-buyout/

    http://leverageacademy.com/blog/2011/03/04/2310/ - KKR & Bain to IPO HCA at $30/share

    Check out our intensive investment banking, private equity, and sales & trading courses! The discount code Merger34299 will be activated until April 15, 2011. Questions? Feel free to e-mail thomas.r[at]leverageacademy.com with your inquiries or call our corporate line.

     
    Tags: HCA, KKR
    Mar 11 1:30 AM | Link | Comment!
  • Angry Bird Creator (Android) Raises $42mm in Seed Capital

    The latest phone app craze is the game "Angry Birds," a popular pastime for android users across the globe.  It was developed by Finnish company, Rovio, and is played by over $40 million users per month. The game description on the Android app website reads: "Use the unique powers of the Angry Birds to destroy the greedy pigs’ fortresses! The survival of the Angry Birds is at stake. Dish out revenge on the greedy pigs who stole their eggs. Use the unique powers of each bird to destroy the pigs’ fortresses. Angry Birds features challenging physics-based game-play and hours of replay value. Each of the 225 levels requires logic, skill, and force to solve."  Is this Company the next Zynga?  Who knows...I questioned Farmville when it came out as well.

    Rovio, the tiny Finnish company behiind the iPhone, iPad and Android app Angry Birds, says it has raised $42 million from investors.

    The game, consisting of angry birds shot at bewildered-looking pigs, is played by 40 million users every month, the Wall Street Journal said today. its fans, according to Daily Mail, include UK prime minister David Cameron, and Aussie leader Julia Gillard.

    The funding round was co-led by venture capital firm Accel Partners, known for working with fast-growing companies such as Facebook. Also involved was the venture capital firm Atomico Ventures, created by Skype co-founder Niklas Zennstrom.

    It is part of an “aggressive expansion mode” that Rovio’s co-founder and chief executive Mikael Hed said will make the company an “important entertainment media company for the future”.

    Although he would not say what projects the company was working on, or how big of a share of the company was sold, Mr Hed reportedly told TV-industry website C21media.net that Rovio was looking at plans to make a broadcast cartoon version of Angry Birds.

    "We will strengthen the position of Rovio and continue building our franchises in gaming, merchandising and broadcast media. Our next big thing is to execute superbly well on our strategy," Mr Hed said in the article today.

    Rovio has all ready been building on Angry Birds’ success with franchise products such as soft toys, which have sold more than 2 milion units.

    Please visit http://www.leverageacademy.com/curriculum_investing.php to sign up for our intensive investment banking, private equity, and sales & trading courses in Boston & New York.  Classes will also be held online, live through video feeds at these locations.  The discount code Merger34299 will be activated until April 15, 2011.  Questions?  Feel free to e-mail thomas.r[at]leverageacademy.com with your inquiries or call our corporate line.

    Mar 11 1:29 AM | Link | Comment!
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