The Fall of D'Long


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Please note:

This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

Case Details:

Price:

Case Code : BENV009 For delivery in electronic format: Rs. 300;
For delivery through courier (within India): Rs. 300 + Rs. 25 for Shipping & Handling Charges

Themes

Corporate Scams
Case Length : 13 Pages
Period : 1996-2007
Pub Date : 2007
Teaching Note : Not Available
Organization : D' Long Group
Industry : Diversified
Countries : China

Abstract:

The case discusses the rise and fall of China based D'Long Group (D'Long). The group was started by Tang brothers in Xinjiang as a small facility to develop and print photographs. D'Long grew by acquiring companies involved in different businesses ranging from tomato paste to automobile parts. Since there were limited options available to obtain finance for its rapidly growing businesses in China, D'Long began acquiring shares in the state-owned enterprises. D'Long then procured bank loans by using the shares of its listed companies as collateral. The group went on to establish itself in financial services business by establishing NBFCs and acquiring stake in City Commercial Banks.

D'Long obtained more funds by issuing right shares and providing debt guarantees. Funds obtained from different sources like trust companies and finance companies were used for buying its own shares, in order to increase the share price.

The investigations by China Banking Regulatory Commission in 2003 placed D'Long among high-risk companies, after which banks refused to extend any more loans to it. In April 2004, D'Long announced that it was facing major financial problems due to adverse macro-economic conditions and fall in share prices of its listed companies. This announcement led to further fall in share prices and demand from the banks for higher collateral. D'Long failed to meet its financial and business obligations and failed to repay its depositors, which led to its collapse.

Issues:

Examine the reasons for initial success of D'Long

Critically evaluate the factors that led to the collapse of D'Long

Analyze the methods used by private companies to obtain funds for financing business in China

Gain insights in the functioning of banking industry and capital markets in China

Contents:

  Page No.
Introduction 1
Background Note 2
Financing Business Expansion 3
The Problems 5
The Collapse 6
The Aftermath 8
Exhibits 10

Keywords:

D'Long Group, Stock Scandal, Bankruptcy, Financial Problems, Chinese Banking Industry, Financing Private Businesses , Transparency, Collateral Securities, Debt Guarantees, Diversification, Business Expansion, Corporate Governance Structure, Chinese Securities Regulatory Commission, Capital Market Financing in China, Asset Management

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