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  • July 2003 (Revised September 2003)
  • Case
  • HBS Case Collection

Refinancing of Shanghai General Motors (A), The

By: Mihir A. Desai and Mark Veblen
  • Format:Print
  • | Pages:21
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Abstract

The CFO of General Motors' joint venture in Shanghai, Shanghai General Motors (SGM), wants to refinance almost $900 million of project finance it raised to begin operations. The highest priority is improving the terms of the financing with regard to costs and specific covenants. Several factors complicate the CFO's objective, including the presence of capital controls, the impending entry of China into the World Trade Organization, the joint venture partner's captive finance subsidiary, and the conflicting goals of the joint venture partners. The case illustrates how subsidiary financial decisions must trade off entity-level and parent-level concerns. It also illustrates how multinational financial decision making--including transfer pricing, repatriation, and funding decisions--must be designed to accommodate governance concerns, financial objectives, and the potentially divergent interests of joint venture partners. The framework of the on-going operational and investment decisions that Shanghai General Motors undertakes in its early growth demonstrates the "life cycle" of subsidiary finance. The case also touches on elements of foreign governments' attempts to regulate capital markets, the dynamic between domestic and international banks in competing for lending opportunities to multinational subsidiaries, and how subsidiary management can achieve the most desirable funding terms.

Keywords

Business Subsidiaries; Multinational Firms and Management; Joint Ventures; Financing and Loans; Auto Industry; Shanghai

Citation

Desai, Mihir A., and Mark Veblen. "Refinancing of Shanghai General Motors (A), The." Harvard Business School Case 204-031, July 2003. (Revised September 2003.)
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About The Author

Mihir A. Desai

Finance
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Related Work

    • July 2003 (Revised September 2003)
    • Faculty Research

    Refinancing of Shanghai General Motors (B), The

    By: Mihir A. Desai and Mark Veblen
Related Work
  • Refinancing of Shanghai General Motors (B), The By: Mihir A. Desai and Mark Veblen
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