Chapter 2390: Financing (Part 25)

Cheng Dong had stayed out of the entire financing process. First, his background was in accounting rather than finance, leaving him without the depth of expertise to contribute meaningfully. Second, he recognized these waters ran dangerously deep. Whether the outcome proved good or bad, controversy was sure to follow. Better to keep his distance.

The current plan struck him as moderate, neither excessive nor reckless. Whatever the Senate chose to do was fine by him, so long as it achieved the fundamental goal of raising funds without burdening the central bank or creating serious aftereffects.

"This approach of minimizing complexity is commendable," Cheng Dong said. "I'm personally quite opposed to designing overly intricate financial products. The old spacetime taught us enough painful lessons about that."

This correct but essentially useless statement signaled he had nothing further to ask.

Meng Xian spoke up next. "I have two questions. First, how exactly is this Southeast Asia Shipping entity structured? Second, while I have no objection to your equity arrangement, will this design confuse local wealthy households? To what extent might it affect issuance? How have you addressed this?"

Chu He answered, "Southeast Asia Shipping is a shell company established to handle the former Liu Xiang Group's shareholding. It has no business activities or actual operations, since the original Southeast Asia Company's assets and personnel were all transferred to Southeast Asia Operations. The Planning Committee doesn't want the naturalized former pirates to hold stakes in Southeast Ops, so they created this shell company. Dividends will be distributed just as before."

Meng Xian pressed further. "What about the equity ratio? How did you arrive at 60:40?"

"The old pirate naturalized group held 49% of the original Southeast Asia Company," Chu He explained. "We consider this ratio too high for the new company. Although it's merely a shell company, we decided to dilute the Liu Xiang Group's shareholding to 40% through a virtual capital injection, accounting for future possibilities."

Meng Xian thought: So they just pulled a number from thin air. He asked aloud, "Won't the group's personnel push back? After all, the original policy was designed to win over distant allies."

Chu He had fully anticipated this question. "No. First, they won't understand. How many of these old pirates can even read? Fewer still can interpret financial statements and detect our methods. Second, their treatment won't decrease. They'll receive dividends exactly as before. Our principle is that their dividends will 'only increase, never decrease'—and looking at past years, that figure was already modest. At worst, we maintain the status quo. Third, we're offering them a way forward. They're now employees of Southeast Asia Operations Company. Their daily work remains identical; only the signboard has changed. The only difference is the name on their annual dividend notice. If they want to board the Senate's train for developing Southeast Asia, they can apply to purchase stocks."

Meichuan interjected, "I don't think it will significantly affect the natives' understanding. As long as we don't emphasize Southeast Asia Operations—just discuss Southeast Asia Holdings—by the time anyone notices the difference, the stocks will have long been issued."

Ai Zhixin added, "Then why not name one 'Southeast Asia Development Holdings Company' and the other 'Southeast Asia Development Operations Company'? Or drop the word 'Operations' from the latter entirely. That way, outsiders will be even more convinced they're the same entity. When they discover otherwise, they can't blame anyone but themselves."

Meng Xian thought: You speak so casually about word games. Call it what it is—the Senate deceiving people, then reneging. It's no different from advertising a plate of shrimp for 9.9 yuan, then charging 9.9 per shrimp at checkout! These wealthy households aren't fools. Every major fortune in Guangzhou was built by shrewd operators. Give them time to think, and they'll see through your little tricks!

Meng Xian had spent years in Guangzhou's banking circles and knew his clients intimately. These financial maneuvers were certainly novel for seventeenth-century minds, but by no means incomprehensible. Given enough information and time, they would quickly pierce the veil. And the stock issuance underwriter was Delong. If disputes with wealthy households couldn't be resolved, he would be the first to suffer headaches.

Seeing Meng Xian's deepening frown, Zhou Wei spoke up. "What opinions does Comrade Meng Xian have? Let's discuss further."

Meng Xian pursed his lips. "I don't have major objections, but I personally don't agree with this kind of wordplay trickery. If you simply don't want wealthy households interfering with operations, just issue preferred stock. Preferred stock carries no voting rights. Is a holding company really necessary?"

Chu He thought: Right now there isn't even a Company Law. Can't the Senate run a company however it pleases? Natives can't even tell whether the Senate's behavior is ugly. Why worry about wealthy households? We're not issuing a prospectus anyway. Why explain anything so clearly? Just say the Senate wants to recover Southeast Asia—are you with us or not?

Zhou Wei had even less inclination to quibble over this issue. He gave a few dry laughs and said evasively, "These are excellent questions. We'll continue to revise. During implementation, we'll fully consider all parties' interests. In short, we can't make things difficult for everyone, hahaha."

Fortunately, Meng Xian didn't pursue "how to improve," and the matter was glossed over.

Dingding, sitting nearby, asked, "This bond of ours offers 10% annual interest. That's much lower than market rates, isn't it? Can these 220,000 in bonds actually be issued?"

Chu He answered, "In terms of total volume, there's no problem. The Nanyang Company is raising 300,000 yuan from the public. Back during the second countercampaign siege, Guangzhou's ransom was also 300,000 taels. For Guangzhou's merchants, this amount is merely a drop in the bucket." He nodded toward Ai Zhixin. "In terms of interest, according to the finance sector Senators' investigation report—"

Ai Zhixin picked up the thread. "Lending rates among Guangzhou's major merchants generally fluctuate between 25% and 60%. Recently, with the plague just ended and the market sluggish, rates have stayed low—basically under 25%. Actual operations probably run below 20%. Our first phase interest of 10% isn't far from private rates and shouldn't be difficult to accept. When Wang Zunde borrowed from Gao Ju and the others, the interest was also just 18%." In fact, the actual interest rate for that loan had been around 25%, with 18% being merely the nominal figure, but Chu He didn't explain this detail to Dingding.

Dingding continued, "Then the 8% bonds issued later, and those with even lower interest—surely those will face difficulties?"

Zhou Wei already understood what Dingding was driving at. "Naturally. Smooth bond issuance depends on everyone's cooperation. First, we need to make stocks attractive and create a wealth effect. Second, we need the propaganda sector's help to generate buzz around the Nanyang Company, amplify its appeal, publicize the wealth effect, and attract attention from wealthy households. This naturally requires Senator Ding's considerable assistance."

Dingding feigned restraint. "We're not professionals at this."

"No problem at all," Zhou Wei assured him. "We'll work on it together when the time comes. Advertising fees and such are all negotiable."

At this point, Cheng Dong spoke again. "You mentioned wanting to create a wealth effect. How do you plan to accomplish this?"

Ren Youzi explained, "This requires coordination with the exchange. Currently there's only one stock on the market. The first two phases issued a total of just 30,000 shares. There's simply no active trading market—which is convenient for us to play the role of market maker. We'll publish daily bid and ask prices, collect buy and sell order slips from Senators, naturalized citizens, and wealthy households, then settle at day's end. We'll match the orders for transactions, then publish new bid and ask prices the following day. I believe that through the propaganda sector's efforts, once Southeast Development is listed, buy orders should far exceed sell orders. This allows us to guide the trend and push up the stock price. If that doesn't happen, it hardly matters. Order quantities and prices aren't transparent to outsiders anyway. We can push prices up artificially. Even if those wealthy households from the targeted issuance are blind enough to sell everything to us, we still have the bond issuance money to buy it all back. Besides, we can control trading volume—push up the actual price while keeping volume modest. In short, as long as we can drive the stock price up 20% in a short time, that's enough to support the second and third phase issuances."

Cheng Dong thought: Your plan has the major shareholder acting as market maker, not only manipulating prices but conducting fake transactions. Such people are truly... worthy of being core members of the Guangzhou Exchange Preparatory Team. In his heart, he was happy to see wealthy households harvested like leeks to support Senate construction—this was one of the finance sector's service mottos. But as the finance department head, he also bore responsibility for establishing sound financial order and maintaining the Senate's credibility. If the exchange stirred up public anger, he would be held accountable.

After some thought, he said, "The Nanyang Company, as Southeast Development's major shareholder, also serving as market maker—that shouldn't be compliant."

"Correct, this is merely a stopgap measure," Ren Youzi immediately stated. "In the future, the market-making function will definitely be split off."

This was satisfactory to Cheng Dong. Truthfully, right now the Senate served as both athlete and referee, profiting from the arrangement as a matter of course. But everything required moderation.

Meng Xian said, "The matching scheme you described—settling transactions at day's end—is essentially just one call auction per day. If prices only change once daily, there's no need for a market maker."

"I'm just making a suggestion," Ren Youzi replied. "It depends on how the Guangzhou Exchange's trading rules are ultimately set. If participation increases in the future, we can have two settlements a day, or multiple settlements. Real-time settlement isn't necessary—there simply won't be that many frequent transactions, and we can hardly process them anyway."

"This arrangement is equivalent to T-day trading with T+1 confirmation," Cheng Dong continued. "Price and volume would both be manipulated. Aren't you forcing people to trade on the black market?"

Zhou Wei coughed. "The black market is unavoidable. The first two phases of bearer bonds and stocks we issued originally allowed wealthy households to trade among themselves. If official channels make stocks difficult to obtain, that will only push up black market prices—which makes newly issued stocks even more attractive."

(End of Chapter)