SimTrade: an inspiration for a career in finance
In this article, Qiuyi Xu (ESSEC Business School, Global Bachelor of Business Administration, 2019-2021) shares her experience as an intern in a securities company in China.
Interested in finance, I took the SimTrade course during my study at ESSEC Business School. This course helped me gain knowledge about financial markets as well as served to motivate me to continue my exploration in the sector of finance. Now I have started an internship at the investment banking department of a top 10 securities company in China.
The concept of “investment banking services” is slightly different in China. While in the US and Europe, it refers to all kinds of services (investment banking division, asset management, sales & trading and research departments), in China, it mainly includes securities (stocks and bonds) issuance and underwriting, merger & acquisition and restructuring.
My mission
My mission is to support the team responsible for an initial public offering (IPO) project. An initial public offering (IPO) refers to the process of offering shares of a private corporation to the public in a new stock issuance. Public share issuance allows a company to raise capital from public investors.
A main part of our work is to conduct pre-IPO due diligence. Due diligence is regularly carried out to assess the market maturity of the IPO candidate. We deal executers, together with the accompanying issuing houses and the advisers, typically commissions due diligence covering the financial, tax, legal, commercial, IT, operational, environmental and human resource areas. The objective of the pre-IPO due diligence is to analyze the sustainability of the business model, the plausibility of planning and the disbursement capacity of the company.
I am responsible for financial due diligence and shareholders’ due diligence. A pre-IPO due diligence delivers insights into the sustainability of the company’s business model, assesses the competitive landscape, delves into the opportunities available in the candidate’s industry and fully assesses the potential risks that could impact the company.
For financial due diligence, I check the bank card records of transactions of senior executives to identify whether their receipts and payments are normal transactions or there are possibilities of property transfer or commercial bribery. In addition, I check a large number of loan contracts, including the debt amount, starting and ending date, guarantors and guarantee amount to confirm whether the company’s liabilities are within a reasonable range and whether it has potential debt crisis. I am also responsible for writing the relevant part of financial analysis in the prospectus. For shareholders’ due diligence, I have collected the information of the company’s shareholders which should be disclosed in the prospectus through questionnaires under my mentor’s guide. In the case of an IPO, the shareholders of a company are usually directors, supervisors, and senior managers. Since they are the persons who are actually responsible for the operation of the company, we need to disclose in the prospectus their educational and professional backgrounds in detail so that investors can judge whether the company’s top management team can manage the company well to ensure its long-term growth. It is also important to know their investments in other companies or their holdings of shares of other companies, and to recognize the benefit relationship between shareholders and related companies.
Although I did not have the opportunity to participate in the whole process of an IPO project as it usually takes about two years to carry out a project from the beginning of due diligence to the final listing on an exchange, I still feel it is a rewarding experience because so far, I have helped my mentor completed a lot of basic information processing and through this process I have learned how the data and information in the prospectus are obtained, and I have gained an extensive series of knowledge of auditing, commercial laws, and corporate management.
Through the communication with the associates in my group, I learned about what the working environment and lifestyles are like for bankers. The work in an investment bank may begin with dealing with trivial things for several years, but the fact that many elites gather there and their pursuit of perfection in work allow people to develop working capacities and qualities that ordinary people need ten years to cultivate in three years. For example, the customers you are facing are senior executives of large companies, so you can touch the ideas of leaders in the industry; your skills to make and present slides will be greatly improved by doing numerous presentations to customers; and by analyzing the company’s business, you will have a deep understanding of the industry that it is in after each deal.
Relevance to the SimTrade certificate
Primary market and secondary market are interdependent upon each other. Primary market brings new tradeable stocks and bonds to secondary market. A company is considered private prior to an IPO. It grows with a relatively small number of shareholders including early investors like the founders, family and relatives along with professional investors such as angel investors. To expand at a higher speed, the company needs to raise more capital. That’s what an IPO can provide. Via an IPO, securities are created in the primary market. Those securities are then traded by public investors in the secondary market. The secondary market provides liquidity to company founders and early investors, and they can take advantage of a higher valuation to generate dividends for themselves.
From the course SimTrade, I learned many factors that may affect a company’s stock price. For example, when the company appoints a new director who has many years’ experience in the company’s business sector, this favorable news will attract more investors to invest because they believe that under the guidance of this new director, the company’s performance will improve. As a result, the valuation will increase, and the stock price will rise. If the news comes like the company’s new product development has failed, it will lower the expectations of investors, causing some of them to sell stocks and invest in other stocks, accompanied by a decline in stock price. This knowledge about the secondary market also helps me find out more factors that should be considered in pre-IPO due diligence. We should identify the company’s potential competitive advantages, which will become an attraction to public investors and ensure its vitality in the securities market; we also need to recognize its risk factors because if the company does not operate well, it will face the risk of delisting, and more importantly, we are responsible for ensuring the sustainable trade order in the secondary market.
In short, the SimTrade course has equipped me with necessary knowledge needed in internship as well as future work and paved the way for me to secure an ideal position. This will be an asset that I will cherish for the rest of life.
About the author
Article written in May 2021 by Qiuyi Xu (ESSEC Business School, Global Bachelor of Business Administration, 2019-2021).