问答题
2.The treasury department of Chawan Co, a listed company, aims to maintain a portfolio of around $360 million consisting of equity shares, corporate bonds and government bonds, which it can turn into cash quickly for investment projects. Chawan Co is considering disposing 27 million shares, valued at $2·15 each, which it has invested in Oden Co. The head of Chawan Co’s treasury department is of the opinion that, should the decision be made to dispose of its equity stake in Oden Co, this should be sold through a dark pool network and not sold on the stock exchange where Oden Co’s shares are listed. In the last few weeks, there have also been rumours that Oden Co may become subject to a takeover bid.
Oden Co operates in the travel and leisure (T&L) sector, and the poor weather conditions in recent years, coupled with a continuing recession, has meant that the T&L sector is under-performing. Over the past three years, sales revenue fell by an average of 8% per year in the T&L sector. However, there are signs that the economy is starting to recover,but this is by no means certain.
Given below are extracts from the recent financial statements and other financial information for Oden Co and the T&L sector.
Oden Co
Year ending 31 May (all amounts in $m)
问答题
(a) Explain what a dark pool network is and why Chawan Co may want to dispose of its equity stake in Oden Co through one, instead of through the stock exchange where Oden Co’s shares are listed. (5 marks)
【正确答案】A dark pool network allows shares to be traded anonymously, away from public scrutiny. No information on the trade order is revealed prior to it taking place. The price and size of the order are only revealed once the trade has taken place. Two main reasons are given for dark pool networks: first they prevent the risk of other traders moving the share price up or down; and second they often result in reduced costs because trades normally take place at the mid-price between the bid and offer; and because broker-dealers try and use their own private pools, and thereby saving exchange fees.
Chawan Co’s holding in Oden Co is 27 million shares out of a total of 600 million shares, or 4·5%. If Chawan Co sold such a large holding all at once, the price of Oden Co shares may fall temporarily and significantly, and Chawan Co may not receive the value based on the current price. By utilising a dark pool network, Chawan Co may be able to keep the price of the share largely intact, and possibly save transaction costs.
Although the criticism against dark pool systems is that they prevent market efficiency by not revealing bid-offer prices before the trade, proponents argue that in fact market efficiency is maintained because a large sale of shares will not move the price down artificially and temporarily.
【答案解析】
问答题
(b) Discuss whether or not Chawan Co should dispose of its equity stake in Oden Co. Provide relevant calculations to support the discussion.
Note: Up to 10 marks are available for the calculations. (20 marks)
【正确答案】Ratio calculations
Focus on investor and profitability ratios
【答案解析】