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Hutchison Whampoa Ltd Case Summary

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HUTCHISON WHAMPOA'S FINANCING STRATEGY PRIOR TO JUNE 1997
A financing strategy is integral to an organization’s strategic plan. It sets out how the organization plans to finance its overall operations to meet its objectives now and in the future. Hutchison, like other large firms in Hong Kong, relied heavily on internally generated funds to fuel growth. Having reserves of 67,994m (more than twiceof operating expenses in 1996), it is stable enough to continue without external funding, indicating a conservative financing strategy.
Debt ratios for 1995 & 1996 are 46% and 42% respectively, showing HWL’s relatively medium dependency on debt . With approximate interest coverage ratio of 4.96 and an A3/A+ credit rating from Moody’s and S&P respectively, HWL was considered to have a relatively low default risk.
As stated in the case, HWL had “drawn on short-and medium-term loan facilities underwritten by banking syndicates for external financing”. Prior to June 1997, the longest debt maturity HWL had offered was 9 years including subsidiary loans. Looking at HWL’s long term liabilities in 1996, 69.5% of its loans are repayable in 5 years which further indicates the firm’s strategy of borrowing without long term obligations to maintain liquidity and flexibility.
There is a net cash outflow of 5,486 compared to cash inflow of 3,950 – this was mainly due to the increase in purchase of and advances to associated companies, additions to managed funds and other investments, and purchase of fixed assets. This was in line with the firm’s overall strategy of expanding its core businesses and their market shares in Asia. However, the negative cash flow may be a sign that current financing policy is not sufficient for future growth. As such, HWL now wanted to long-term financing with lower interest rates.
In summary, Hutchison Whampoa’s financing strategies were to rely

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