跨国并购财务风险外文翻译文献.doc

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1、跨国并购财务风险外文翻译文献 跨国并购财务风险外文翻译文献(文档含英文原文和中文翻译)Financial Risks of Chinese EnterprisesCross-Border Mergers and AcquisitionsAbstractWith overall strength of Chinese enterprises and national going out strategy, cross-border M & As initiated by Chinese enterprises have been booming. However, compared with d

2、eveloped countries, Chinese enterprises started their M & As late and lacked experience and professionals. As a result, Chinese enterprises faced with numerous risks in cross-border M & As, especiallywith the financial risks. This paper, based on the analysis of Chinese enterprises cross-border M &

3、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; risks1. OVERVIEW OF FINANCIAL RISKS OF CROSS-BORDER M & ASFinancial risks refer to the reimbursement risks and change of re

4、turns to shareholders triggered by financing decision in the process of enterprises cross-border mergers and acquisitions (abbr. M & As). Enterprises often go through three phasesvaluation, financing, and paymentin the process of cross-border M & As. Based on valuation, financing, and payment, decis

5、ions affect enterprises assets structure and even their solvency and returns to their shareholders. In addition, cross-border M& As use an international currency for most countries.Change in exchange rates affects corporate earnings, as well as shareholders returns. Therefore, there are four main ty

6、pes of financial risks: valuation risk, financing risk, payment risk, and exchange rate risk.2. STATUS OF CHINESE ENTERPRISES CROSS-BORDER M & ASCombining with going out strategy, Chinese enterprises upgrade their strength and participate in the context of economic globalization. Chinese enterprises

7、 begin to go abroad, merging and acquiring foreign ones. Although Chinese enterprises cross-border M & As started late, China has become the worlds fifth cross-border acquiring power in 2009. Status of Chinese enterprises cross-border M & As is as follows:2.1 Increases in the Number and Scale of M &

8、 AsIn the year of 2008, Chinese companies completed only 30 cases of cross-border M & As, costing less than $ 9 billion. In the year of 2013, Chinese companies completed 99 cross-border M & A, amounting to $ 38.5 billion. The number of M & As doubled, while the total amount grew more than three time

9、s.2.2 Large State-Owned Enterprises as M & As SubjectCompared with private enterprises, large state-owned enterprises have more their own capital. It is easy for them to get loans and finance, so Chinese cross-border M & As are mostly done by large state-owned enterprises. On the Summer Davos Forum

10、in 2013, Andrew, Global Chairman of KPMG International, pointed out that 86% of the Chinas foreign investment camefrom Chinasstate-owned enterprises. By far in China, the largest cross-border M & As was initiated by Chinas state-owned enterprises CNOOC. On February 27, 2013, CNOOC successfully acqui

11、red Nexen Corp., a Canadian company, by spending $ 15.1 billion.2.3 Cash as the Main Form of PaymentChinas market economy status has not been recognized by all countries, and, to a certain extent, Chinese enterprises are discriminated in cross-border M & As. In addition, Chinas financial market is n

12、ot perfect. In order to gain direct control of the acquired enterprises, Chinese enterprises mostly pay by cash. According to Bloomberg, 79.4% of Chinas cross-border M & As made their payment by cash, 3.3% by stock, and only 1.18% by other mode.2.4 Increased Impact of Exchange Rate on M & AsBefore t

13、he year of 2012, the floating range of RMB against U.S. dollar was only 0.5%. Since 2012, Chinas central bank adjusted the floating range of RMB against U.S. dollar to 1%, and on March 15, 2014, extended it to 2%. Compared to the previous fixed exchange rate, the change of exchange rate significantl

14、y 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 WITHCHINESE ENTERPRISES IN CROSSBORDER M & AS Chinese enterprises began to participate in cross-border M & As actively only in the past t

15、en years. The lack of experience made it difficult to accurately value the target enterprises. Chinas 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 interna

16、tional monetary. Cross-border M & As is done by dollar or euro, which brings risks to Chinese cross-border M & As.3.1 The Valuation RiskDetermination 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

17、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 cross-border M & As performing by Chinese e

18、nterprises. This risk is reflected in a series of cases, such as TCL and Thomson M & A, China Investment Corporations investment in Blackstone USA, acquisition of United CommercialBank (UCB) by China Minsheng Bank (CMB).Take the failure of acquisition of UCB by CMB as an example. After the outbreak

19、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 banks market value shrank by 70%. CMB didnt take this as a sign of warning, it injected again after that. U

20、ntil 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 vita

21、l 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 th

22、at it took the devaluation of UCBs stock as an opportunity of another capital injection instead of warning.3.2 Financing RiskFinancing 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

23、enterprises in their cross-border 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 adve

24、rse effect on TCL was due to bad financing decisions in M & As. In 2003 TCLs annual profit was only about CNY 560 million, while Alcaters amount of loss on TV sets and DVDs was as high as 120.TCL did not achieve profitability immediately after M & As. TCL not only was unable to repay debt generated

25、from acquisition financing, but also increased the new debt. After that, TCLs 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 coun

26、trys 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

27、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.3.3 Payment RiskPayment decision is based on valuation decision and financing decision. A

28、t 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 cross-border M & As. This payment mode can effectively help enterprises obtain the control of target enterp

29、rises 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

30、, Ping An bought Fortiss stocks three times from secondary markets, accounting for 4.99% of the total shares, becoming the largest shareholder of Fortis Group. However, by 2008 November, Fortiss share price fell 96% cumulatively, and Ping An suffered huge losses. In order to make cash payment in the

31、 secondary markets to get Fortis shares, Ping An published additionalits own shares and also increased debt. As a result of this M & A, Ping Ans financial risk was increased; the ratio of assets and liabilities was as high as 88.47% in 2008.Chinas financial market established late, and is in a progr

32、essive 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 th

33、e 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 rent-seeking behavior. As a result, enterprises get bank loans only after paying for large cost. Government grants usu

34、ally 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.3.4 Exchange Rate RiskRMB is not an inter

35、national currency, and its circulation is limited in the world, so it can not be used in international transactions. Therefore, Chinese cross-border M & As need foreign exchange, under normal circumstances, dollars or euros. For Chinese enterprises, whether to borrow or buy foreign exchange, there i

36、s 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 rat

37、e 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 AurukunPayment decision is based on valuation decision and financing d

38、ecision. 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 cross-border M & As. This payment mode can effectively help enterprises obtain the control of tar

39、get 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 20

40、07 to 2008, Ping An bought Fortiss stocks three times from secondary markets, accounting for 4.99% of the total shares, becoming the largest shareholder of Fortis Group. However, by 2008 November, Fortiss share price fell 96% cumulatively, and Ping An suffered huge losses. In order to make cash paym

41、ent in the secondary markets to get Fortis shares, Ping An published additionalits own shares and also increased debt. As a result of this M & A, Ping Ans financial risk was increased; the ratio of assets and liabilities was as high as 88.47% in 2008.Chinas financial market established late, and is

42、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, we

43、akening 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 rent-seeking behavior. As a result, enterprises get bank loans only after paying for large cost. Government

44、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.3.4 Exchange Rate RiskRMB is no

45、t an international currency, and its circulation is limited in the world, so it can not be used in international transactions. Therefore, Chinese cross-border M & As need foreign exchange, under normal circumstances, dollars or euros. For Chinese enterprises, whether to borrow or buy foreign exchang

46、e, 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, ex

47、change 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 Aurukunbauxite development project by $2.92 billion. During

48、the period of bid, Australian dollar exchange rate was about 0.68, and in 2008 July, it appreciated to 0.9848. The Australian dollar rate fluctuated nearly 40%. While CHALCN deposits in dollars, the cross-border M & A project led to huge losses because of exchange rate fluctuation.Boundary condition

49、 of cash payments is (VAB-VA)/(1+a)CpVB, where VAB is the acquirers cash flow after M & A, VA is the acquirers 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 unreaso