This Case is about ACCOUNTING
PUBLICATION DATE: January 14, 2016 PRODUCT #: W16008-HCB-ENG
On the 8th of May, 2012, the president of Hefei Xingtai Financial Holding Group (Xingtai) attained a message from a senior official of the Hefei Municipal Government, the company’s authorizing body, asking that Xingtai supply financial support to PanTeng Company (PanTeng), a solar power manufacturing company. In order to live, PanTeng needed Xingtai to offer a guarantee for an JPY100 million business loan from a commercial bank. PanTeng had been turned down by Xingtai Financing Guaranty, one of the subsidiary companies in Xingtai, due to the possibly high degree of guarantee threat. If a guarantee was supplied by Xingtai, it may be liable to reimburse the loan due to PanTeng’s high risk business, lose its risk management expertise, and confront additional infractions. Nevertheless, refusing the senior officer’s request would hamper the significant relationship together with the local government in Xingtai. Should Xingtai approve the loan and take a chance, or should it refuse the guarantee? Jiuchang Wei is affiliated with University of Technology and Science China. Lei Zhou is affiliated with University of Technology and Science.