Salgacoar is an Indian shipping company that owns and operates 12 bulk dry cargo freighters. Headquartered in Goa (India), it specializes in shipping coal and iron ore primarily to South Korea. Its return on equity (ROE) is 17 percent with a book value currently at INR 15 billion. Its market capitalization on the Bombay Stock Exchange (BSE)

is INR 22. 5 billion with a β = 1. 31. Risk-free and market return on the BSE are currently at 4. 5 percent and 8 percent, respectively. Salgacoar Shipping was considering raising INR 5 billion on the Bombay Stock Exchange when its adviser at Standard Chartered Bank pointed out that the Hong Kong Stock Exchange was the world’s premier equity market for shipping companies not only for Hong Kong flag carriers but also for Indonesian, Japanese, South Korean, and other Asian firms.

a. Under what considerations should Salgacoar Shipping consider tapping the Hong Kong Stock Exchange for equity financing?

b. What information would you like to have access to?

c. What are the costs and benefits associated with raising equity in Hong Kong?

d. The shipping stock index on the Hong Kong Stock Exchange is currently trading at a P/E of 17. What is your recommendation to Salgacoar Shipping?