Financial Risks of Chinese Enterprises’ CrossBorder Mergers and Acquisitions
Abstract
With overall strength of Chinese enterprises and national going out strategy crossborder M & As initiated by Chinese enterprises have been booming However compared with developed countries Chinese enterprises started their M & As late and lacked experience and professionals As a result Chinese enterprises faced with numerous risks in crossborder M & As especially with the financial risks This paper based on the analysis of Chinese enterprises’ crossborder M & As cases in recent years explained how the financial risks formed and finally came up with efficacious precautionary measures
Key words Chinese enterprise M & As Financial risks
1 OVERVIEW OF FINANCIAL RISKS OF CROSSBORDER M & AS
Financial risks refer to the reimbursement risks and change of returns to shareholders triggered by financing decision in the process of enterprises’ crossborder mergers and acquisitions (abbr M & As) Enterprises often go through three phases—valuation financing and payment—in the process of crossborder M & As Based on valuation financing and payment decisions affect enterprises’ assets structure and even their solvency and returns to their shareholders In addition crossborder M& As use an international currency for most countriesChange in exchange rates affects corporate earnings as well as shareholders’ returns Therefore there are four main types of financial risks valuation risk financing risk payment risk and exchange rate risk
2 STATUS OF CHINESE ENTERPRISES’ CROSSBORDER M & AS
Combining with going out strategy Chinese enterprises upgrade their strength and participate in the context of economic globalization Chinese enterprises begin to go abroad merging and acquiring foreign ones Although Chinese enterprises’ crossborder M & As started late China has become the world’s fifth crossborder acquiring power in 2009 Status of Chinese enterprises’ crossborder M & As is as follows
21 Increases in the Number and Scale of M & As
In the year of 2008 Chinese companies completed only 30 cases of crossborder M & As costing less than 9 billion In the year of 2013 Chinese companies completed 99 crossborder M & A amounting to 385 billion The number of M & As doubled while the total amount grew more than three times
22 Large StateOwned Enterprises as M & As Subject
Compared with private enterprises large stateowned enterprises have more their own capital It is easy for them to get loans and finance so Chinese crossborder M & As are mostly done by large stateowned enterprises On the Summer Davos Forum in 2013 Andrew Global Chairman of KPMG International pointed out that 86 of the China’s foreign investment came from China’s
stateowned enterprises By far in China the largest crossborder M & As was initiated by China’s stateowned enterprises CNOOC On February 27 2013 CNOOC successfully acquired Nexen Corp a Canadian company by spending 151 billion
23 Cash as the Main Form of Payment
China’s market economy status has not been recognized by all countries and to a certain extent Chinese enterprises are discriminated in crossborder M & As In addition China’s financial market is not perfect In order to gain direct control of the acquired enterprises Chinese enterprises mostly pay by cash According to Bloomberg 794 of China’s crossborder M & As made their payment by cash 33 by stock and only 118 by other mode
24 Increased Impact of Exchange Rate on M & As
Before the year of 2012 the floating range of RMB against US dollar was only 05 Since 2012 China’s central bank adjusted the floating range of RMB against US dollar to 1 and on March 15 2014 extended it to 2 Compared to the previous fixed exchange rate the change of exchange rate significantly increased which made the Chinese enterprises begin to consider the impact of exchange rate change on acquisition costs in their M & As
3 FINANCIAL RISKS FACED WITH
CHINESE ENTERPRISES IN CROSSBORDER M & AS Chinese enterprises began to participate in crossborder M & As actively only in the past ten years The lack of experience made it difficult to accurately value the target enterprises China’s financial market is not mature it is difficult for Chinese enterprises to finance and choose payment mode At the same time the international financial market fluctuates and RMB is not an international monetary Crossborder M & As is done by dollar or euro which brings risks to Chinese crossborder M & As
31 The Valuation Risk
Determination of the transaction price of M & As is actually a game playing by initiators and targets of M & As Under normal circumstances the initiators can not fully grasp the information of target corporations so it is difficult to estimate accurately In general valuation price will be higher than the actual value of the target enterprise Overvalued price causes the main type of financial risk faced with the crossborder M & As performing by Chinese enterprises This risk is reflected in a series of cases such as TCL and Thomson M & A China Investment Corporation’s investment in Blackstone USA acquisition of United Commercial Bank (UCB) by China Minsheng Bank (CMB)
Take the failure of acquisition of UCB by CMB as an example After the outbreak of the subprime crisis in American western banks were shrinking The CMB decided to merge the UCB in the United States CMB injected funds to UCB twice in 2008 After the first injection the bank’s market value shrank by 70 CMB didn’t take this as a sign of warning it injected again after that Until September 2009 financial investors suddenly announced the existence financial concealment by UCB and in November UCB was permanently closed In the process of M & As CMB overvalued UCB and eventually increased the loss
How much information about target enterprises that acquirers get is vital to evaluation Even if acquirers get enough information it is so subjective to calculate target enterprises’ real value In the CMB M & A case there existed big difference between subjective evaluation and real value of UCB After the first injection of capital the biggest mistake for CMB was that it took the devaluation of UCB’s stock as an opportunity of another capital injection instead of warning
32 Financing Risk
Financing decision plays a vital role in the M & As It is the foundation of pricing decision and also the condition of payment decision The major financing channels used by enterprises in their crossborder M & As are their own funds stock financing and bank loans At present Chinese enterprises mostly use their own funds in acquisitions resulting in increasing financial problems
In the case of acquisition of Alcatel by TCL in the year of 2004 the significant adverse effect on TCL was due to bad financing decisions in M & As In 2003 TCL’s annual profit was only about CNY ¥560 million while Alcater’s amount of loss on TV sets and DVDs was as high as €120TCL did not achieve profitability immediately after M & As TCL not only was unable to repay debt generated from acquisition financing but also increased the new debt After that TCL’s financial risks continued to expand
Financing risk is composed of two parts one is the environmental risk of financing and the other is the debt risk of financing Environmental risk of financing associates with the country’s
macroenvironment and the maturity of its financial markets that is the more capital markets are developed the better the macroenvironment is the more financing instrument may be used the more acquirers can get financing with less cost Debt risk of financing is related to the structure of repayment period Although as a whole macroeconomic environment is well in China the financial markets are not mature and furthermore unreasonable repayment structure will bring financing risk to acquirers
33 Payment Risk
Payment decision is based on valuation decision and financing decision At present there are mainly three kinds of payment mode cash payment equity payment and leverage payment Chinese enterprises generally use cash payment which is the most risky one in their crossborder M & As This payment mode can effectively help enterprises obtain the control of target enterprises successfully but it increases financial pressure and the debt burden of Chinese enterprises which easily leads them to liquidity risk and financial difficulties
In the case of acquisition of Fortis Group Belgium by Ping An Insurance (Group) Company of China Ltd (Ping An) from 2007 to 2008 Ping An bought Fortis’s stocks three times from secondary markets accounting for 499 of the total shares becoming the largest shareholder of Fortis Group However by 2008 November Fortis’s share price fell 96 cumulatively and Ping An suffered huge losses In order to make cash payment in the secondary markets to get Fortis shares Ping An published additional
its own shares and also increased debt As a result of this M & A Ping An’s financial risk was increased the ratio of assets and liabilities was as high as 8847 in 2008
China’s financial market established late and is in a progressive stage of development In immature financial markets there are limited financing instruments that can be used for acquirers Most of the capital comes from acquirers’ own capital bank loans or government grants The use of their own capital takes up a lot of corporate liquidity weakening the ability of dealing with emergencies with their liquid capital For bank loans in the immature capital markets banks monopolize capital ask for monopolized profits and may have rentseeking behavior As a result enterprises get bank loans only after paying for large cost Government grants usually support specific industries and the related audit procedures are very complicated Even if the companies were in the field of government subsidized industry they might miss opportunities to complete M & A due to complicated procedures and lengthy audit
34 Exchange Rate Risk
RMB is not an international currency and its circulation is limited in the world so it can not be used in international transactions Therefore Chinese crossborder M & As need foreign exchange under normal circumstances dollars or euros For Chinese enterprises whether to
borrow or buy foreign exchange there is time difference between the day of signing contract and of the actual payment during which the change in exchange rates will affect the costs of M & As so that enterprises face foreign currency risk In addition when enterprises settle their income in foreign currency or pay debt exchange rate change will lead to the uncertainty of their future earnings
In the case of acquisition of Aurukun project by Aluminum Corporation of China Limited (CHALCN) exchange rate risk was obvious In March 2007 CHALCN bid Australian Aurukun bauxite development project by 292 billion During the period of bid Australian dollar exchange rate was about 068 and in 2008 July it appreciated to 09848 The Australian dollar rate fluctuated nearly 40 While CHALCN deposits in dollars the crossborder M & A project led to huge losses because of exchange rate fluctuation
Boundary condition of cash payments is (VABVA)(1+a)≥Cp≥VB where VAB is the acquirer’s cash flow after M & A VA is the acquirer’s cash flow before M & A a is the cost rate of cash payment Cp is the amount of cash and VB is the value of target enterprise When (VABVA)(1+a)In the process of payment companies must make reasonable arrangement for funding As to payment arrangement if enterprises arranged the time structure and scale structure unreasonably a relevant factor such as cost of corporate debt tax cost and intermediate costs would increase and make the increase of postmerger cash flows less than the actual cash flow resulting in acquirers’ ultimate loss that is they would suffer enormous pressure and expose themselves to financial distress
4 COUNTERMEASURES OF FINANCIAL RISKS
In this part we analyzed the causes of financial risks in Chinese enterprises’ crossborder M & As and proposed the corresponding countermeasures
41 Prevention of Valuation Risk
For these businesses involved in crossborder M & As accurate valuation is the first step to the success Valuation affects the whole process of M & As Therefore it is very important to avoid valuation risk
First hire a professional team of valuation Since the Chinese enterprises lack experience of crossborder M & As it is difficult for acquiring enterprises to grasp the main points in the process of valuation of target companies It is more likely that target firms would hide key information from them Usually a professional valuation team has rich experience in M & As better information collection and analysis ability and usually it is able to obtain the information needed from analysis through its unique channels thereby it helps reduce the risk of enterprise valuation
Second choose scientific methods of valuation Enterprises can choose a relatively accurate estimation methods based on the actual situation and may also give a certain weight to each valuation approach and make comprehensive valuation in order to disperse the risks of each valuation method
Third adjust financial statements Financial statements can only reflect the past performance and cannot reflect the future one At the same time the financial statements cannot take the key points of business out of balance sheet included In order to overcome these adverse factors of valuation acquiring enterprises can adjust the financial statements of target companies according to the information they got about the target companies They can include the business other than those shown on balance sheet into account give the weight coefficient of financial indicators and make a comprehensive valuation of the target companies
42 Prevention of Financing Risk
For Chinese corporation financing risks arise due to the immaturity of China’s financial markets Chinese enterprises have limited choices of financing channels to fund their M & As so it is difficult for them to obtain enough funds needed in M & As At the same time there is no reasonable capital structure when arranging financing Therefore for the above reasons we proposed three countermeasures
First improve the financial markets and support the development of private credit in order to provide cheap financing for M & As in the short time Financial innovation will lead to creation of new financial instruments to meet the needs of companies and investors to facilitate corporate financing and raise enough funds while decentralizing financing risks
Second use innovative financing methods For example in 2010 in order to finance acquisition of Volvo Geely Automobile used both fund financing and government funding In order to attract local government funding Geely promised to build factories in the cities whose local governments have funded it Eventually Geely gained 3 billion fund from Chinese local companies including 1 billion from International Daqing 1 billion from Jiaerwo Shanghai and 1 billion from Chengdu Bank
Finally set up a reasonable set of repayment structure Before enterprises involve themselves in M & As they should take fully consideration of how to pay debts in two consequences of success and failure in M & As respectively When companies fail in M & As enterprises should have sufficient liquidity to repay debt resulted from the initial investment And if companies can successfully achieve acquisition then companies should make sure that their repayment time scale and structure can math their cash flow scale and structure after the merger of target
companies
43 Prevention of Payment Risk
Payment risk results from the dependence of Chinese enterprises involved in crossborder M & A on cash payment and unreasonable payment structure arranged by these enterprises Therefore in order to prevent payment risk Chinese enterprises should adopt various payment methods in their crossborder M & As and arrange payment structure reasonably Lenovo gives us a very good demonstration In December 2004 Lenovo purchased IBM’s PC business by 125 billion 065 billion in cash plus 06 billion by shares of Lenovo This payment method greatly reduced the pressure of cash flow pressure on Lenovo It was shown that debt rate of Lenovo remained at normal level in 2004
44 Prevention of Exchange Rate Risk
Wider scope of Chinese exchange rate volatility helps RMB internationalization and also brings more challenges to enterprises who participate in crossborder M & As Exchange rate risk will further intensify so we need to take positive measures to avoid it
First internationalize RMB gradually If RMB become an international currency Chinese crossborder acquiring enterprises can use the RMB directly and then there is no currency exchange and no exchange rate risk At present the achievement of RMB regionalization is only a small step in the process of RMB internationalization
Second adopt different hedging strategies They may prevent the risk of exchange rate by choosing different financial instruments and combining them to hedge in the foreign exchange market There are many financial instruments we can use such as the foreign exchange forward foreign exchange futures foreign exchange options and currency swaps
CONCLUSION
The paper introduced the status of Chinese enterprise crossborder M & As and then analyzed the financial risks faced with Chinese enterprise crossborder M & As that is evaluation risk financing risk payment risk and exchange rate risk In order to overcome or even prevent these risks Chinese enterprises should accumulate experiences of crossborder M & As performance and take use of innovative financial methods Chinese government should promote the financial markets support financial innovation and promote RMB internationalization By their all efforts Chinese enterprises will perform better in heir crossborder M & As
中国企业跨国购财务风险
摘
着国企业综合实力国家战略实施国企业跨国购活动蓬勃发展然发达国家相国企业起步较晚缺乏验中国企业面着众风险特金融风险跨国购文分析年国企业跨国购案例分析基础阐述金融风险形成提出效防范措施
关键词：中国企业购金融风险
1跨国购财务风险概述
财务风险指偿付风险改变回报股东企业跨国购程中融资决策触发（简称购）企业通三阶段估值融资支付程中跨国购基估值融资支付决定企业资产结构甚企业偿债力股东偿债力外跨国购数国家种国际货币汇率变动会影响企业盈利会影响股东收益四种类型金融风险：估值风险融资风险支付风险汇率风险
2中国企业跨国购现状
中国企业济全球化背景结合走出战略提高身实力参中国企业开始走出国门兼收购外国企业然中国企业跨国购起步较晚已成世界第五跨国购2009力量中国企业跨国购现状：
21增加数量规模购
2008年度中国企业完成30起跨国购成90亿美元2013年度中国企业完成99跨国购达385亿美元购数量增加倍总金额增长三倍
22国型国企业作购体
民营企业相型国企业拥更资容易获贷款融资中国跨国购型国企业2013日夏季达沃斯坛毕马威国际董事长安烈指出86中国外投资中国
国企业目前止中国跨国购中国国企业中海油发起2013年2月27日中海油成功收购Nexen公司加公司花151亿美元
23现金形式付款方式
中国市场济位尚未国认定程度中国企业跨国购中受歧视外中国金融市场完善获直接控制收购企业中国企业现金支付彭博社报道794中国跨国购现金支付33股票118模式
24增加汇率购影响
2012年前民币兑美元浮动幅度仅052012中国央行调整民币兑美元浮动区间12014年3月15日民币兑美元扩2相前固定汇率汇率变化显着增加中国企业开始考虑购成变化收购成影响
3面财务风险
中国企业跨国购中国企业开始参跨国购十年中积极缺乏验难准确估价目标企业国金融市场尚未成熟国企业融资难选择支付方式时国际金融市场波动民币国际货币跨国购美元欧元完成中国跨国购带风险
31估值风险
企业购交易价格确定实际博弈发起者购目标正常情况发起完全掌握目标企业信息难准确估计般言估值价格会高目标企业实际价值高估价格导致跨国购类型金融风险中国企业表现种风险体现系列案例TCL汤姆逊购中国国家投资公司黑石集团美国投资美国商业银行收购（UCB）中国民生银行（CMB） 招商银行收购UCB失败例美国次贷危机爆发西方银行萎缩招商银行决定美国合UCB招商银行注入资金时2008次第次注入银行市值缩水70招商银行没作警告次注射直2009年9月金融投资者突然宣布存财务隐瞒UCB十月UCB永久关闭购程中招商银行高估UCB终损失增加 少关目标企业收购者获信息关重评估收购方获足够信息观计算目标企业真实价值招商银行购案存观评价UCB真正价值差第资注入招行错误UCB股票贬值作代警告资注入机会
32融资风险
融资决策企业购中起着关重作定价决策基础支付决策条件企业跨国购中融资渠道资金股票融资银行贷款目前国企业采资金进行收购导致财政问题日益增 2004年TCL收购阿尔卡特TCL重利影响购融资决策作坏2003年 TCL集团年度利润仅5亿6000万元
阿尔卡特电视机DVD损失量120欧元TCL没购立实现盈利高TCL仅法偿收购融资产生债务增加新债务TCL财务风险断扩 融资风险两部分组成环境风险融资融资债务风险国家宏观环境金融市场成熟融资伙伴环境风险更资市场发展更宏观环境更融资工具更较低成获融资收购债务风险款期限结构关然作整体宏观济环境中国金融市场成熟合理款结构收购带融资风险
33支付风险
支付决策基估值决策融资决策目前三种支付方式：现金支付股权支付杠杆支付中国企业普遍现金支付风险跨国购种支付模式效帮助企业获成功目标企业控制增加中国企业财务压力债务负担容易导致流动性风险财务困难
利时富通集团收购案安保险（集团）公司公司（安）20072008安收购富通股票次级市场三倍占公司股份总数499成富通集团第股东然2008年11月前富通集团股价跌96安遭受巨损失二手市场获富通股份进行现金支付安公布股份增加债务购安金融风险加2008年资产负债率高达8847
中国金融市场建立较晚正处渐进发展阶段成熟金融市场限融资工具收购部分资金收购方资金银行贷款政府补助资占量企业流动性削弱应紧急情况力流动资金银行贷款资市场发育成熟银行垄断资寻求垄断利润寻租行企业获银行贷款付出巨代价政府补助通常支持特定行业相关审计程序非常复杂公司政府资助行业会错机会完成购复杂程序冗长审计
34汇率风险
民币国际货币国际流通限国际交易中中国跨境购需正常情况美元欧元中国企业说款购买外汇存着签订合时间实际支付时间差汇率变动会影响企业购成企业面外币风险外企业外币结算时支付债务汇率变动导致未收益确定性
中国铝业公司收购奥鲁昆项目案例汇率风险显易见月2007澳利亚奥鲁昆铝土矿开发项目出价29亿2000万美元投标期间澳元汇率约068七月200809848澳元汇率波动40美元存款跨国购项目造成巨损失汇率波动
现金支付边界条件(VABVA)(1+a)≥Cp≥VBVAB收购方现金流购VA收购方现金流购前现金支付成率CP现金量VB目标企业价值
(VABVA)(1+a)支付程中企业必须资金进行合理安排付款安排果企业安排时间结构规模结构合理相关素企业债务成税收成中间费增加合现金流量增加实际现金流导致收购方终损失遭受巨压力暴露财务困境会
4财务风险策
部分分析国企业跨国购中财务风险成提出相应策
41风险防范
企业涉跨国购准确估值成功第步估值影响购整程避免评估风险非常重
首先聘请专业团队估值国企业缺乏跨国购验企业目标企业价值评估程中难握观点目标公司更隐藏关键信息专业评估团队般具丰富购验较信息采集分析力通常够通独特渠道获取需信息降低企业估值风险
二选择科学估价方法企业根实际情况选择种较准确估算方法种估值方法进行定权重进行综合评价分散估价方法风险
第三调整财务报表财务报表反映表现反映未时财务报表资产负债表中关键业务核心克服利素估值收购企业根目标公司信息调整目标公司财务报表包括业务外资产负债表考虑金融指标权重系数作出全面估值目标公司
42防范筹资风险
中国企业中国金融市场成熟导致融资风险国企业融资渠道选择限融资渠道限难获足够资金需求时安排融资时没合理资结构针述原提出三点策
首先完善金融市场支持私信贷发展期购短期融资提供廉价融资金融创新导致新金融工具创新满足企业投资者需求方便企业融资筹集足够资金分散融资风险
二运创新融资方式例2010融资收购沃尔沃吉利汽车两基金融资政府资助吸引政府资金吉利承诺政府资助城市中建造工厂终吉利中国公司获30亿美元基金包括国际庆10亿美元海10亿美元成银行10亿美元
建立套合理款结构企业购程中应充分考虑购成功失败果中分承担债务企业购企业失败时企业应具充足流动性偿债务导致初始投资果公司够成功实现购企业必须确保款时间规模结构目标企业购现金流量规模结构进行计算
43支付风险防范
支付风险源中国企业参跨国购赖性企业合理支付结构国企业应采取支付方式合理方式合理安排支付结构防范支付风险联想示范十二月2004联想收购IBMPC业务12亿5000万美元6亿5000万美元现金加股票6亿美元联想种支付方式降低联想现金流压力显示联想债务率保持正常水2004
44汇率风险防范
中国汇率波动范围更广助民币国际化跨国购企业带更挑战汇率风险会进步加剧需采取积极措施规避汇率风险 首先民币逐渐国际化果民币成国际货币中国跨国购企业直接民币然没货币交换没汇率风险目前民币区域化实现民币国际化进程中步 二采取套期保值策略通选择金融工具合外汇市场防止汇率风险许金融工具例：外汇远期外汇期货外汇期权货币互换
结
介绍国企业跨国购现状分析国企业跨国购财务风险评价风险融资风险支付风险汇率风险克服甚防范风险中国企业应积累跨国购验利创新财务方法中国政府应推动金融市场支持金融创新推动民币国际化通努力中国企业跨国购方面表现更
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Abstract
With overall strength of Chinese enterprises and national going out strategy crossborder M & As initiated by Chinese enterprises have been booming However compared with developed countries Chinese enterprises started their M & As late and lacked experience and professionals As a result Chinese enterprises faced with numerous risks in crossborder M & As especially with the financial risks This paper based on the analysis of Chinese enterprises’ crossborder M & As cases in recent years explained how the financial risks formed and finally came up with efficacious precautionary measures
Key words Chinese enterprise M & As Financial risks
1 OVERVIEW OF FINANCIAL RISKS OF CROSSBORDER M & AS
Financial risks refer to the reimbursement risks and change of returns to shareholders triggered by financing decision in the process of enterprises’ crossborder mergers and acquisitions (abbr M & As) Enterprises often go through three phases—valuation financing and payment—in the process of crossborder M & As Based on valuation financing and payment decisions affect enterprises’ assets structure and even their solvency and returns to their shareholders In addition crossborder M& As use an international currency for most countriesChange in exchange rates affects corporate earnings as well as shareholders’ returns Therefore there are four main types of financial risks valuation risk financing risk payment risk and exchange rate risk
2 STATUS OF CHINESE ENTERPRISES’ CROSSBORDER M & AS
Combining with going out strategy Chinese enterprises upgrade their strength and participate in the context of economic globalization Chinese enterprises begin to go abroad merging and acquiring foreign ones Although Chinese enterprises’ crossborder M & As started late China has become the world’s fifth crossborder acquiring power in 2009 Status of Chinese enterprises’ crossborder M & As is as follows
21 Increases in the Number and Scale of M & As
In the year of 2008 Chinese companies completed only 30 cases of crossborder M & As costing less than 9 billion In the year of 2013 Chinese companies completed 99 crossborder M & A amounting to 385 billion The number of M & As doubled while the total amount grew more than three times
22 Large StateOwned Enterprises as M & As Subject
Compared with private enterprises large stateowned enterprises have more their own capital It is easy for them to get loans and finance so Chinese crossborder M & As are mostly done by large stateowned enterprises On the Summer Davos Forum in 2013 Andrew Global Chairman of KPMG International pointed out that 86 of the China’s foreign investment came from China’s
stateowned enterprises By far in China the largest crossborder M & As was initiated by China’s stateowned enterprises CNOOC On February 27 2013 CNOOC successfully acquired Nexen Corp a Canadian company by spending 151 billion
23 Cash as the Main Form of Payment
China’s market economy status has not been recognized by all countries and to a certain extent Chinese enterprises are discriminated in crossborder M & As In addition China’s financial market is not perfect In order to gain direct control of the acquired enterprises Chinese enterprises mostly pay by cash According to Bloomberg 794 of China’s crossborder M & As made their payment by cash 33 by stock and only 118 by other mode
24 Increased Impact of Exchange Rate on M & As
Before the year of 2012 the floating range of RMB against US dollar was only 05 Since 2012 China’s central bank adjusted the floating range of RMB against US dollar to 1 and on March 15 2014 extended it to 2 Compared to the previous fixed exchange rate the change of exchange rate significantly increased which made the Chinese enterprises begin to consider the impact of exchange rate change on acquisition costs in their M & As
3 FINANCIAL RISKS FACED WITH
CHINESE ENTERPRISES IN CROSSBORDER M & AS Chinese enterprises began to participate in crossborder M & As actively only in the past ten years The lack of experience made it difficult to accurately value the target enterprises China’s financial market is not mature it is difficult for Chinese enterprises to finance and choose payment mode At the same time the international financial market fluctuates and RMB is not an international monetary Crossborder M & As is done by dollar or euro which brings risks to Chinese crossborder M & As
31 The Valuation Risk
Determination of the transaction price of M & As is actually a game playing by initiators and targets of M & As Under normal circumstances the initiators can not fully grasp the information of target corporations so it is difficult to estimate accurately In general valuation price will be higher than the actual value of the target enterprise Overvalued price causes the main type of financial risk faced with the crossborder M & As performing by Chinese enterprises This risk is reflected in a series of cases such as TCL and Thomson M & A China Investment Corporation’s investment in Blackstone USA acquisition of United Commercial Bank (UCB) by China Minsheng Bank (CMB)
Take the failure of acquisition of UCB by CMB as an example After the outbreak of the subprime crisis in American western banks were shrinking The CMB decided to merge the UCB in the United States CMB injected funds to UCB twice in 2008 After the first injection the bank’s market value shrank by 70 CMB didn’t take this as a sign of warning it injected again after that Until September 2009 financial investors suddenly announced the existence financial concealment by UCB and in November UCB was permanently closed In the process of M & As CMB overvalued UCB and eventually increased the loss
How much information about target enterprises that acquirers get is vital to evaluation Even if acquirers get enough information it is so subjective to calculate target enterprises’ real value In the CMB M & A case there existed big difference between subjective evaluation and real value of UCB After the first injection of capital the biggest mistake for CMB was that it took the devaluation of UCB’s stock as an opportunity of another capital injection instead of warning
32 Financing Risk
Financing decision plays a vital role in the M & As It is the foundation of pricing decision and also the condition of payment decision The major financing channels used by enterprises in their crossborder M & As are their own funds stock financing and bank loans At present Chinese enterprises mostly use their own funds in acquisitions resulting in increasing financial problems
In the case of acquisition of Alcatel by TCL in the year of 2004 the significant adverse effect on TCL was due to bad financing decisions in M & As In 2003 TCL’s annual profit was only about CNY ¥560 million while Alcater’s amount of loss on TV sets and DVDs was as high as €120TCL did not achieve profitability immediately after M & As TCL not only was unable to repay debt generated from acquisition financing but also increased the new debt After that TCL’s financial risks continued to expand
Financing risk is composed of two parts one is the environmental risk of financing and the other is the debt risk of financing Environmental risk of financing associates with the country’s
macroenvironment and the maturity of its financial markets that is the more capital markets are developed the better the macroenvironment is the more financing instrument may be used the more acquirers can get financing with less cost Debt risk of financing is related to the structure of repayment period Although as a whole macroeconomic environment is well in China the financial markets are not mature and furthermore unreasonable repayment structure will bring financing risk to acquirers
33 Payment Risk
Payment decision is based on valuation decision and financing decision At present there are mainly three kinds of payment mode cash payment equity payment and leverage payment Chinese enterprises generally use cash payment which is the most risky one in their crossborder M & As This payment mode can effectively help enterprises obtain the control of target enterprises successfully but it increases financial pressure and the debt burden of Chinese enterprises which easily leads them to liquidity risk and financial difficulties
In the case of acquisition of Fortis Group Belgium by Ping An Insurance (Group) Company of China Ltd (Ping An) from 2007 to 2008 Ping An bought Fortis’s stocks three times from secondary markets accounting for 499 of the total shares becoming the largest shareholder of Fortis Group However by 2008 November Fortis’s share price fell 96 cumulatively and Ping An suffered huge losses In order to make cash payment in the secondary markets to get Fortis shares Ping An published additional
its own shares and also increased debt As a result of this M & A Ping An’s financial risk was increased the ratio of assets and liabilities was as high as 8847 in 2008
China’s financial market established late and is in a progressive stage of development In immature financial markets there are limited financing instruments that can be used for acquirers Most of the capital comes from acquirers’ own capital bank loans or government grants The use of their own capital takes up a lot of corporate liquidity weakening the ability of dealing with emergencies with their liquid capital For bank loans in the immature capital markets banks monopolize capital ask for monopolized profits and may have rentseeking behavior As a result enterprises get bank loans only after paying for large cost Government grants usually support specific industries and the related audit procedures are very complicated Even if the companies were in the field of government subsidized industry they might miss opportunities to complete M & A due to complicated procedures and lengthy audit
34 Exchange Rate Risk
RMB is not an international currency and its circulation is limited in the world so it can not be used in international transactions Therefore Chinese crossborder M & As need foreign exchange under normal circumstances dollars or euros For Chinese enterprises whether to
borrow or buy foreign exchange there is time difference between the day of signing contract and of the actual payment during which the change in exchange rates will affect the costs of M & As so that enterprises face foreign currency risk In addition when enterprises settle their income in foreign currency or pay debt exchange rate change will lead to the uncertainty of their future earnings
In the case of acquisition of Aurukun project by Aluminum Corporation of China Limited (CHALCN) exchange rate risk was obvious In March 2007 CHALCN bid Australian Aurukun bauxite development project by 292 billion During the period of bid Australian dollar exchange rate was about 068 and in 2008 July it appreciated to 09848 The Australian dollar rate fluctuated nearly 40 While CHALCN deposits in dollars the crossborder M & A project led to huge losses because of exchange rate fluctuation
Boundary condition of cash payments is (VABVA)(1+a)≥Cp≥VB where VAB is the acquirer’s cash flow after M & A VA is the acquirer’s cash flow before M & A a is the cost rate of cash payment Cp is the amount of cash and VB is the value of target enterprise When (VABVA)(1+a)
4 COUNTERMEASURES OF FINANCIAL RISKS
In this part we analyzed the causes of financial risks in Chinese enterprises’ crossborder M & As and proposed the corresponding countermeasures
41 Prevention of Valuation Risk
For these businesses involved in crossborder M & As accurate valuation is the first step to the success Valuation affects the whole process of M & As Therefore it is very important to avoid valuation risk
First hire a professional team of valuation Since the Chinese enterprises lack experience of crossborder M & As it is difficult for acquiring enterprises to grasp the main points in the process of valuation of target companies It is more likely that target firms would hide key information from them Usually a professional valuation team has rich experience in M & As better information collection and analysis ability and usually it is able to obtain the information needed from analysis through its unique channels thereby it helps reduce the risk of enterprise valuation
Second choose scientific methods of valuation Enterprises can choose a relatively accurate estimation methods based on the actual situation and may also give a certain weight to each valuation approach and make comprehensive valuation in order to disperse the risks of each valuation method
Third adjust financial statements Financial statements can only reflect the past performance and cannot reflect the future one At the same time the financial statements cannot take the key points of business out of balance sheet included In order to overcome these adverse factors of valuation acquiring enterprises can adjust the financial statements of target companies according to the information they got about the target companies They can include the business other than those shown on balance sheet into account give the weight coefficient of financial indicators and make a comprehensive valuation of the target companies
42 Prevention of Financing Risk
For Chinese corporation financing risks arise due to the immaturity of China’s financial markets Chinese enterprises have limited choices of financing channels to fund their M & As so it is difficult for them to obtain enough funds needed in M & As At the same time there is no reasonable capital structure when arranging financing Therefore for the above reasons we proposed three countermeasures
First improve the financial markets and support the development of private credit in order to provide cheap financing for M & As in the short time Financial innovation will lead to creation of new financial instruments to meet the needs of companies and investors to facilitate corporate financing and raise enough funds while decentralizing financing risks
Second use innovative financing methods For example in 2010 in order to finance acquisition of Volvo Geely Automobile used both fund financing and government funding In order to attract local government funding Geely promised to build factories in the cities whose local governments have funded it Eventually Geely gained 3 billion fund from Chinese local companies including 1 billion from International Daqing 1 billion from Jiaerwo Shanghai and 1 billion from Chengdu Bank
Finally set up a reasonable set of repayment structure Before enterprises involve themselves in M & As they should take fully consideration of how to pay debts in two consequences of success and failure in M & As respectively When companies fail in M & As enterprises should have sufficient liquidity to repay debt resulted from the initial investment And if companies can successfully achieve acquisition then companies should make sure that their repayment time scale and structure can math their cash flow scale and structure after the merger of target
companies
43 Prevention of Payment Risk
Payment risk results from the dependence of Chinese enterprises involved in crossborder M & A on cash payment and unreasonable payment structure arranged by these enterprises Therefore in order to prevent payment risk Chinese enterprises should adopt various payment methods in their crossborder M & As and arrange payment structure reasonably Lenovo gives us a very good demonstration In December 2004 Lenovo purchased IBM’s PC business by 125 billion 065 billion in cash plus 06 billion by shares of Lenovo This payment method greatly reduced the pressure of cash flow pressure on Lenovo It was shown that debt rate of Lenovo remained at normal level in 2004
44 Prevention of Exchange Rate Risk
Wider scope of Chinese exchange rate volatility helps RMB internationalization and also brings more challenges to enterprises who participate in crossborder M & As Exchange rate risk will further intensify so we need to take positive measures to avoid it
First internationalize RMB gradually If RMB become an international currency Chinese crossborder acquiring enterprises can use the RMB directly and then there is no currency exchange and no exchange rate risk At present the achievement of RMB regionalization is only a small step in the process of RMB internationalization
Second adopt different hedging strategies They may prevent the risk of exchange rate by choosing different financial instruments and combining them to hedge in the foreign exchange market There are many financial instruments we can use such as the foreign exchange forward foreign exchange futures foreign exchange options and currency swaps
CONCLUSION
The paper introduced the status of Chinese enterprise crossborder M & As and then analyzed the financial risks faced with Chinese enterprise crossborder M & As that is evaluation risk financing risk payment risk and exchange rate risk In order to overcome or even prevent these risks Chinese enterprises should accumulate experiences of crossborder M & As performance and take use of innovative financial methods Chinese government should promote the financial markets support financial innovation and promote RMB internationalization By their all efforts Chinese enterprises will perform better in heir crossborder M & As
中国企业跨国购财务风险
摘
着国企业综合实力国家战略实施国企业跨国购活动蓬勃发展然发达国家相国企业起步较晚缺乏验中国企业面着众风险特金融风险跨国购文分析年国企业跨国购案例分析基础阐述金融风险形成提出效防范措施
关键词：中国企业购金融风险
1跨国购财务风险概述
财务风险指偿付风险改变回报股东企业跨国购程中融资决策触发（简称购）企业通三阶段估值融资支付程中跨国购基估值融资支付决定企业资产结构甚企业偿债力股东偿债力外跨国购数国家种国际货币汇率变动会影响企业盈利会影响股东收益四种类型金融风险：估值风险融资风险支付风险汇率风险
2中国企业跨国购现状
中国企业济全球化背景结合走出战略提高身实力参中国企业开始走出国门兼收购外国企业然中国企业跨国购起步较晚已成世界第五跨国购2009力量中国企业跨国购现状：
21增加数量规模购
2008年度中国企业完成30起跨国购成90亿美元2013年度中国企业完成99跨国购达385亿美元购数量增加倍总金额增长三倍
22国型国企业作购体
民营企业相型国企业拥更资容易获贷款融资中国跨国购型国企业2013日夏季达沃斯坛毕马威国际董事长安烈指出86中国外投资中国
国企业目前止中国跨国购中国国企业中海油发起2013年2月27日中海油成功收购Nexen公司加公司花151亿美元
23现金形式付款方式
中国市场济位尚未国认定程度中国企业跨国购中受歧视外中国金融市场完善获直接控制收购企业中国企业现金支付彭博社报道794中国跨国购现金支付33股票118模式
24增加汇率购影响
2012年前民币兑美元浮动幅度仅052012中国央行调整民币兑美元浮动区间12014年3月15日民币兑美元扩2相前固定汇率汇率变化显着增加中国企业开始考虑购成变化收购成影响
3面财务风险
中国企业跨国购中国企业开始参跨国购十年中积极缺乏验难准确估价目标企业国金融市场尚未成熟国企业融资难选择支付方式时国际金融市场波动民币国际货币跨国购美元欧元完成中国跨国购带风险
31估值风险
企业购交易价格确定实际博弈发起者购目标正常情况发起完全掌握目标企业信息难准确估计般言估值价格会高目标企业实际价值高估价格导致跨国购类型金融风险中国企业表现种风险体现系列案例TCL汤姆逊购中国国家投资公司黑石集团美国投资美国商业银行收购（UCB）中国民生银行（CMB） 招商银行收购UCB失败例美国次贷危机爆发西方银行萎缩招商银行决定美国合UCB招商银行注入资金时2008次第次注入银行市值缩水70招商银行没作警告次注射直2009年9月金融投资者突然宣布存财务隐瞒UCB十月UCB永久关闭购程中招商银行高估UCB终损失增加 少关目标企业收购者获信息关重评估收购方获足够信息观计算目标企业真实价值招商银行购案存观评价UCB真正价值差第资注入招行错误UCB股票贬值作代警告资注入机会
32融资风险
融资决策企业购中起着关重作定价决策基础支付决策条件企业跨国购中融资渠道资金股票融资银行贷款目前国企业采资金进行收购导致财政问题日益增 2004年TCL收购阿尔卡特TCL重利影响购融资决策作坏2003年 TCL集团年度利润仅5亿6000万元
阿尔卡特电视机DVD损失量120欧元TCL没购立实现盈利高TCL仅法偿收购融资产生债务增加新债务TCL财务风险断扩 融资风险两部分组成环境风险融资融资债务风险国家宏观环境金融市场成熟融资伙伴环境风险更资市场发展更宏观环境更融资工具更较低成获融资收购债务风险款期限结构关然作整体宏观济环境中国金融市场成熟合理款结构收购带融资风险
33支付风险
支付决策基估值决策融资决策目前三种支付方式：现金支付股权支付杠杆支付中国企业普遍现金支付风险跨国购种支付模式效帮助企业获成功目标企业控制增加中国企业财务压力债务负担容易导致流动性风险财务困难
利时富通集团收购案安保险（集团）公司公司（安）20072008安收购富通股票次级市场三倍占公司股份总数499成富通集团第股东然2008年11月前富通集团股价跌96安遭受巨损失二手市场获富通股份进行现金支付安公布股份增加债务购安金融风险加2008年资产负债率高达8847
中国金融市场建立较晚正处渐进发展阶段成熟金融市场限融资工具收购部分资金收购方资金银行贷款政府补助资占量企业流动性削弱应紧急情况力流动资金银行贷款资市场发育成熟银行垄断资寻求垄断利润寻租行企业获银行贷款付出巨代价政府补助通常支持特定行业相关审计程序非常复杂公司政府资助行业会错机会完成购复杂程序冗长审计
34汇率风险
民币国际货币国际流通限国际交易中中国跨境购需正常情况美元欧元中国企业说款购买外汇存着签订合时间实际支付时间差汇率变动会影响企业购成企业面外币风险外企业外币结算时支付债务汇率变动导致未收益确定性
中国铝业公司收购奥鲁昆项目案例汇率风险显易见月2007澳利亚奥鲁昆铝土矿开发项目出价29亿2000万美元投标期间澳元汇率约068七月200809848澳元汇率波动40美元存款跨国购项目造成巨损失汇率波动
现金支付边界条件(VABVA)(1+a)≥Cp≥VBVAB收购方现金流购VA收购方现金流购前现金支付成率CP现金量VB目标企业价值
(VABVA)(1+a)
4财务风险策
部分分析国企业跨国购中财务风险成提出相应策
41风险防范
企业涉跨国购准确估值成功第步估值影响购整程避免评估风险非常重
首先聘请专业团队估值国企业缺乏跨国购验企业目标企业价值评估程中难握观点目标公司更隐藏关键信息专业评估团队般具丰富购验较信息采集分析力通常够通独特渠道获取需信息降低企业估值风险
二选择科学估价方法企业根实际情况选择种较准确估算方法种估值方法进行定权重进行综合评价分散估价方法风险
第三调整财务报表财务报表反映表现反映未时财务报表资产负债表中关键业务核心克服利素估值收购企业根目标公司信息调整目标公司财务报表包括业务外资产负债表考虑金融指标权重系数作出全面估值目标公司
42防范筹资风险
中国企业中国金融市场成熟导致融资风险国企业融资渠道选择限融资渠道限难获足够资金需求时安排融资时没合理资结构针述原提出三点策
首先完善金融市场支持私信贷发展期购短期融资提供廉价融资金融创新导致新金融工具创新满足企业投资者需求方便企业融资筹集足够资金分散融资风险
二运创新融资方式例2010融资收购沃尔沃吉利汽车两基金融资政府资助吸引政府资金吉利承诺政府资助城市中建造工厂终吉利中国公司获30亿美元基金包括国际庆10亿美元海10亿美元成银行10亿美元
建立套合理款结构企业购程中应充分考虑购成功失败果中分承担债务企业购企业失败时企业应具充足流动性偿债务导致初始投资果公司够成功实现购企业必须确保款时间规模结构目标企业购现金流量规模结构进行计算
43支付风险防范
支付风险源中国企业参跨国购赖性企业合理支付结构国企业应采取支付方式合理方式合理安排支付结构防范支付风险联想示范十二月2004联想收购IBMPC业务12亿5000万美元6亿5000万美元现金加股票6亿美元联想种支付方式降低联想现金流压力显示联想债务率保持正常水2004
44汇率风险防范
中国汇率波动范围更广助民币国际化跨国购企业带更挑战汇率风险会进步加剧需采取积极措施规避汇率风险 首先民币逐渐国际化果民币成国际货币中国跨国购企业直接民币然没货币交换没汇率风险目前民币区域化实现民币国际化进程中步 二采取套期保值策略通选择金融工具合外汇市场防止汇率风险许金融工具例：外汇远期外汇期货外汇期权货币互换
结
介绍国企业跨国购现状分析国企业跨国购财务风险评价风险融资风险支付风险汇率风险克服甚防范风险中国企业应积累跨国购验利创新财务方法中国政府应推动金融市场支持金融创新推动民币国际化通努力中国企业跨国购方面表现更
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