Case study: Aussie Blades, Pty Ltd Use of equity financing Recall that Aussie Blades is considering the establishment necessary financing to cover the construction costs and of a subsidiary in Thailand to manufacture Speedos, Aussie purchase of equipment. At this point, Aussie Blades has Blades' primary rollerblade product. Alternativ Blades could acquire an existing manufacturer of rollerblades in Thailand, Skates'n'Stuff. In the view of Aussie Blades CFO, Ben Holt, establishing a subsidiary in has identified two alternatives for equity financing: issue Thailand yields a higher net present value than acquiring the existing bu has rejected an offer by Aussie Blades of 2600 million baht. A$100 million worth of shares via private placement to A purchase price of 2600 million baht for Skates'n'Stuff would make the acquisition as attractive as the establishment of a subsidiary in Thailand in terms of NPV. subsidiary to finance the project. Skates'n'Stuff has indicated that it is not willing to accept less than 2950 million baht. At the most recent meeting of an IPO from a strong Australia-based company such as the board of directors of Aussie Blades, the directors voted Aussie Blades would be received well by both institutional to establish a subsidiary in Thailand because of the relatively high level of control it would afford Aussie Blades The board of directors has asked Holt to line up the relatively high leverage. Because of this consideration, Holt would prefer equity financing to debt to raise the funds necessary to complete construction of the Thai plant. Holt ely, Aussie the equivalent of A$100 million Thai baht-denominated s. Furthermore, the Thai manufacturershares in an initial public offering in Thailand, or issue Australian institutional investors. The money raised would be converted to Thai baht and transferred to the Thai Investment bankers in Thailand are of the opinion that and retail investors. However, the issue needs to be underpriced by about 10 per cent with respect to the current price of Aussie Blades in the Australian market. A further issuance cost of 10 per cent will be incurred to pay for conducting the public issue The Thai subsidiary is expected to begin production by early next year, and the construction of the plant in Thailand and the purchase of necessary equipment to manufacture Speedos are to commence immediately. Initial estimates of the plant and equipment required to establish the subsidiary in Bangkok indicate costs of approximately 2600 million Thai baht. Si the baht is A$0.038, this trar A$98.8 mi nvesto n Australia will quickly la p up the equity issuance of Aussie Blades sold through private placement. However, the issue needs to be underpriced by about 5 per cent an cost to be paid to investment bankers as c d will incur a further ce the current exchange rate of Au e Blade sked you, a f t at Aussie Blades ng nd the project costs ng q Which method of equity finance will have more If the Thai baht is expected to appreciate substantially with respect be preferable: private placement 5 nge rate risk: private placement to Australian to the Australian dollar, which option will institutions or an IPO to Thai investors? IPO? 2 What are the benefits of IPO issuance compared with All things considered, would private placement or an private placement? are the bene IPO be better given the current situation of Au Bla IPO anc the Thai baht dephi an preci the Australian do which optior IPO? with respect placemen