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Xinhua Finance/Milken Institute Market-Adjusted Debt Indicator Update: MAD Indicator Remains Flat, Despite Equity Market Boom, in Fourth-Quarter 2006

2007-10-19 16:19 894

SHANGHAI, China, Oct. 19 /Xinhua-PRNewswire/ --

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Fourth quarter 2006: 15.6%

Third quarter 2006: 15.5%

Quarter-to-quarter change: 0.7%

Fourth quarter 2005: 18.0%

Year-to-year change: -6.6%

Click http://www.xinhuafinance.com/en/charts/indicator/mad/mad_chart0710_b_en.jpg to download the chart.

Highlights

The value of the Market-Adjusted Debt (MAD) Indicator, which measures the capital structure of Chinese companies using a long-term debt-to-equity ratio, is 15.6 percent for fourth quarter of 2006, a 0.1 percentage point increase from the previous quarter and 2.4 percentage point decrease from the previous year.

Both outstanding debt and market value of companies have increased, indicating that Chinese companies are balancing debt with the market’s assessment of capital.

Analysis

The MAD indicator remained essentially flat in the fourth quarter of 2006. Cyclical factors contributed to an increase of the book value of outstanding long-term debt of all companies, compared to the previous quarter. At the same time, the booming domestic equity market contributed to a 49 percent average increase in the market value of companies.

Domestic interest rates did not change in the fourth quarter but remained at their highest level since 2002. Higher interest rates, an underdeveloped corporate bond market, and higher price-to-equity ratios all contributed to keeping the MAD indicator at a relatively low level at the end of 2006.

Some companies have experienced significant changes in the book value of debt. At Shanghai Automotive, for example, long-term borrowing increased by 5.2 billion Yuan from September 2006 to December 2006, increasing its long-term debt-to-capital ratio from 1.23 to 5.97.

Methodology

There are two components in constructing a market-adjusted debt indicator: the total market value of debt and the total market value of equity. The market value of debt can be calculated based on book value of long-term debt, the duration and coupon rate on the debt, current comparable debt-market interest rates, and weighting for different maturities. The market value of equity can be calculated by multiplying the price per share of equity by the total shares of outstanding equity.

Xinhua Finance/Milken Institute China Indicators

The Xinhua Finance/Milken Institute China Indicators provide investors, analysts, and financial professionals insight into China’s money and capital markets. Five of the eight indicators have been launched since November 2006: the Renminbi Pressure Indicator, the Chinese IPO Indicator, the Market Adjusted Debt (MAD) Indicator, the Banking Strength Indicator (BSI), and the Adjusted Trade and Finance (ATF) Indicator. The remaining three indicators (the China M&A Indicator, the China Privatization Indicator, and the China Corporate Governance Indicator) will be launched later this year.

Period Coverage and Frequency

The indicator covers the period beginning with the fourth quarter of 2003 and extends to the present. Values are calculated on a quarterly basis. The availability of current financial statements will determine the number of included companies.

Sources of Data

The data used in the construction of the indicator are obtained from Xinhua Finance China Insight TM and Bloomberg.

To view additional information, visit http://www.xinhuafinance.com/indicators and http://www.milkeninstitute.org/chinaindicators .

Xinhua Finance Limited ("XFL") is China's premier financial information and media service provider and is listed on the Mothers Board of the Tokyo Stock Exchange (symbol: 9399) (OTC ADRs: XHFNY). Bridging China's financial markets and the world, Xinhua Finance's proprietary content platform, comprising Indices, Ratings, Financial News, and Investor Relations, serves financial institutions, corporations and re-distributors worldwide. Through its subsidiary Xinhua Finance Media Limited (Nasdaq: XFML), XFL leverages its content across multiple distribution channels in China including television, radio, newspaper, magazine and outdoor media. Founded in November 1999, XFL is headquartered in Shanghai, with offices and news bureaus spanning 11 countries worldwide. For more information, please visit http://www.xinhuafinance.com .

The Milken Institute is a nonprofit, independent economic think tank whose mission is to improve the lives and economic conditions of diverse populations around the world by helping business and public policy leaders identify and implement innovative ideas for creating broad-based prosperity. The Milken Institute has extensive expertise in China and conducts ongoing research on China's banking and capital markets. It is based in Santa Monica, Calif. For more information, please visit http://www.milkeninstitute.org .

Source: Xinhua Finance; Milken Institute
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