Jenny is a chief financial officer (CFO) of JJ Corp., was reviewing her presentation one last time before her upcoming meeting with the board of directors. JJ's business had been brisk for the last two years, and the Company's CEO was pushing for a dramatic expansion of the company production capacity. Executing the CEO's plans would require RM3 billion in capital in addition to RM2 billion in excess cash that the firm had built up. Jenny's immediate task was to brief the board on options for raising the needed RM3 billion. Unlike most companies its size, JJ had maintained its status as a private company, financing its growth by reinvesting profits and, when necessary, borrowing from banks. Whether JJ could follow that same strategy to raise the RM3 billion necessary to expand at the pace envisioned by the company's CEO was uncertain, though it seemed unlikely to Jenny. She had identified two options for the board to consider and asking your opinion as a treasurer of JJ to analyse for these two options:

Option 1: JJ could approach Maybank, a bank that had served JJ well for many years with seasonal credit lines as well as medium-term loans. Jenny believed that Maybank was unlikely to make a RM3 billion loan to JJ on its own, but it could probably gather a group of banks together to make a loan of this magnitude. However, the banks would undoubtedly demand that JJ limit further borrowing and provide Maybank with periodic financial disclosures so that they could monitor JJ's financial condition as it expanded its operations. (6 Marks)

Option 2: JJ could convert to public ownership, issuing stock to the public in the primary market. With JJ's excellent financial performance in recent years, Jenny thought that its stock could command a high price in the market and that many investors would want to participate in any stock offering that JJ conducted. Becoming a public company would also allow JJ, for the first time, to offer employees compensation in the form of stock or stock options, thereby creating stronger incentives for employees to help the firm succeed. On the other hand, Jenny knew that public companies faced extensive disclosure requirements and other regulations that JJ had never had to confront as a private firm. Furthermore, with stock trading in the secondary market, who knew what kind of individuals or institutions might wind up holding a large chunk of JJ's stock? You are required to analyse the benefits and drawbacks for these two options and recommend to Jenny on which option is the most suitable for JJ Corp and why? (6 Marks)