M & commercial bank loans of opening

                The macro economic effect and the risk prevention

              This article has been published in "economic reference > (sponsored by the State Council Development Research Center)

     In December 8th, the CBRC promulgated the "loan risk management guidelines" M & Commercial Bank, marking the loans in China's commercial bank mergers and acquisitions, has become a new loan varieties, appear in the commercial bank loan series. The acquisition of loans in the western developed country already was a very ordinary loans varieties widely used, our country on the basis of "commercial bank law" and "loan general" provisions, banned commercial banks issuing equity investment loans. But now in China to expand domestic demand, the growth period is timely roll out, with the meaning of value. M & commercial bank loans is higher risk products, how to strengthen risk prevention, value research.

A,  The connotation and historical origins of commercial bank merger and acquisition loan.

At present, our definition of "M & a payment" means, used to support enterprise within the territory of China M & a transfer of existing stock, subscription of new shares, or the acquisition of assets, liabilities, undertake, in order to achieve the enterprise mergers or actual control and sustainable management target of the enterprise. At present, the main support of the strategic M & A, in order to better support Chinese enterprises through mergers and acquisitions, enhance the core competition ability, promote the industry restructuring, mergers and acquisitions and determine the source of funds in the merger and acquisition loan proportion shall not be higher than 5%. Provisions of all commercial banks M & a bank loans account for the same period the core capital should not exceed 50%. To the same borrower loans to M & a core capital accounted for the ratio should not exceed 5% of the proportion, and made specific provisions and requirements on personnel, merger loan business operation.

The acquisition of loans, in our country is a new thing. In fact, since 2005, commercial banks in advance by the CBRC for approval consent, issued the corresponding loan to PetroChina, Sinopec, CNOOC, Huaneng, Air China, engaged in equity mergers and acquisitions, this is "of a batch of" system. This is the "general loans" breakthrough, "loan general" provisions of commercial banks are not allowed to provide equity acquisitions loan. It should be said, the acquisition of loans is different from the ordinary loans, loan repayment general is optimal in order, and the acquisition of loans is usually used to repay the debt equity dividends.

Some big companies, USA big enterprise, the big banks are through a series of mergers and acquisitions developed from financial institutions, American merger loan experience and lessons, will give us M & a start-up loans have important reference significance.

American appeared five tides of merger and acquisition in the history, respectively is 1895 ~ 1904, 1922 to 1929, 1940 to 1968, 1976 ~ 1988, 1990 up to now. Through the analysis on the economic development of USA occurring in the five wave of mergers and acquisitions when, can see are the economic cycle, fluctuations in the economy, the rapid expansion of economy first, and then decline, so M & a have. In 1903 America, economic recession began in 1929, the economy of the great depression, 1974 ~ 1975 economic "stagflation", which are caused by the wave of mergers and acquisitions. The formulation and revision of some legal American is also an important reason. The first is "Sherman Antitrust Act", after the "Clayton method", "Sylar - KAI DE law", are due to appear in mergers and acquisitions. Technology revolution directly promoting the enterprise merger and reorganization, the first M & A and the second industrial revolution phase, key in the heavy manufacturing industry such as steel, chemical, rubber industry. Second the development of M & A and land transportation related, and the automobile industry make a spurt of progress closely related. The third M & A is the aerospace industry mergers and acquisitions, new technology life and technology fields of aerospace, nuclear is closely related to the. The fourth merger and computer, remote communication technology, mergers and acquisitions occurred mainly in the financial services industry, communication industry and automobile manufacturing industry.

M & a loan and "leveraged" inseparable. Small companies through commercial bank loans and the issuance of junk debt (JunkBond) acquisition of larger companies, among which the Wall Street bank traders last name first letter of the name of KKR company, is specialized in issuing junk debt to raise funds for the famous case of mergers and acquisitions.

Famous cases, use of commercial bank loans purchase, to the number of GM is the use of bank loans for mergers and acquisitions. In 1907 September, Durant was treasurer of Buick Company, and after Buick olds Motor Factory merger, in 1908, the express car company was born. Since then, Durant in less than two years, bought 28 companies, which also run out of all of the company's funds. Through hard efforts, Higginson and J W.Seligman agreed to lend $15000000 to GM's loan, and the premise is the bank required to arrange three seats on the board, so in the board of directors of the five board is bank loans accounted for three, the final bankers control of general motors. To regain control of the Du Pont family, Durant agreed, to re launch the expansion plans, and request the Morgan Construction Company loan support, J.P Morgan Construction Company eventually loans to GM $28000000. In support of Morgan, GM with more than Ford automobile company in the mid twentieth Century. Because Ford Motor Co are not agree banks access to the board of directors, afraid to lose control of the company. GM is the famous case of mergers and acquisitions by bank merger and acquisition loan. Although Durant eventually lost the control of the General Company, but this does not preclude the use of bank loans for the success of M & a fact. Estimation is also one of the earliest use of commercial bank loans to the acquisition of the company.

Two,  The M & a business requires a sound financing system, foreign merger and acquisition loans mature operation, China is still uncultivated virgin land, but big space for development prospects.

 The acquisition of loans in foreign countries, has 100 years of history, has accumulated a wealth of experience and lessons. China's M & a history of less than 20 years, with a short history. After China's equity acquisition is mainly carried out through the issuance of the securities market shares and stock purchase by the commercial bank loan financing, mergers and acquisitions are not allowed in the system. The issuance of bonds financing has less.

At present there are three main ways of financing equity merger: one is debt financing mode, the main is to bank loans and the issuance of bonds; the loans across the bridge loan is a frequently used in merger and acquisition mode, the shorter period (usually 6 months to 3 years), high-risk high return. Two is the equity financing, mainly is the issuance of new shares or convertible acquisition. From raising funds into the way of public offering and private offering. The three is a mixed mode of financing. Usually by the secondary convertible debt and revenue based preference shares, often with some kind of guarantee and options. Mezzanine financing is a typical mixed financing, similar in function to the bridge loan, is willing to provide credit funds in the bank before meet the financial needs of the enterprise, is a transitional mode of financing. There is also a more seller financing, adopt payment by installment, the merger as long as pay a part of money to buy, after several years after the settlement, is actually a party financing behavior on corporate mergers and acquisitions.

 For merger and acquisition financing order, there is a theory called Pecking order, that enterprise financing will follow the first free money, then debt financing, and equity financing is the. Because of bank loans and the issuance of bonds can be tax-free, with tax shield effect, debt can be the maximization of enterprise value. And in the principal-agent framework, managers are not always consistent with the interests of shareholders, the moral risk so as to increase the debt constraint manager. But China experts believe that enterprises of our country exist equity preference, because Chinese enterprises generally high rate of assets and liabilities, through equity can reduce the rate of assets and liabilities. But through the listing of equity financing, the enterprise is still to bank loans, is still high debt to asset ratio. So for the bank loan whether at home or abroad, are dependent. So the acquisition of loans are market.

America financial intermediary equity financing of M & A is mainly divided into three categories: one is the depository institutions, commercial banks, savings and loan associations, mutual savings associations and cooperatives, commercial bank is the commercial bank loans, savings and loan associations, mutual savings association does not use the chattel mortgage loans, credit cooperatives are consumer loans; second is the mutual funds, money market mutual funds, financial companies, Vc firm, securities companies. The main form of a mutual fund is a issue of ordinary shares, preference shares, corporate bonds and corporate bonds may be transferred. Money market mutual funds forms of financing in commercial paper, bank bills and other short-term money market financing tool. Financial companies financing tools are consumer loans. Vc firm is the equity investment, common stock, preferred stock and corporate bonds. A securities company is a bridge loan, stock. The third category is the savings institution contract type, including casualty insurance companies, life-insurance company, private pension funds, public pension funds, property and other. Bonds, mortgage life-insurance company Ltd., three forms of financing is the corporate bonds, mortgages, preference shares and ordinary shares. The financing channel and financing tool more visible USA.

 In order to enhance the perceptual knowledge American annexation loan, here to KKR M & a Renault. Nabisco loans as an example to explain. Reynolds. Nabisco in food, tobacco and other lucrative. Company KKR in 1986, chief executive officer and the company to discuss the possibility of leveraged buy outs, started rejected. In 1988 October, private and hired investment bank MBO in the company. KKR use this opportunity to bid. In the KKR leveraged buyout of $25000000000, KKR has invested $1500000000 of equity capital financing, accounted for 6%, accounting for 94% of the $23300000000 in debt financing. The company's financing has a permanent debt securities, increasing interest bill, payment in kind dividend payment bonds, bank debt financing tool four. Bank debt includes: the sale of the assets of the loan facilities initial amount of 6000000000 yuan; financing temporary loan facilities initial amount of 1500000000 yuan; recycling facilities 1750000000 yuan; regular loan facilities until March 31, 1991, there are 3500000000 yuan of outstanding. The flow of capital to facilitate 750000000 yuan. In all debt, bank loan is the level of debt. Bank supervision and Renault's internal funds transfer, because commercial banks and Reynolds a bank loan agreement. If without the agreement of the bank, issued by the holding company shares can not be used for secondary bond repurchase. Also limit the Renault company investment, capital spending limit set. Requirements for Renault will ratio of net asset value and fixed assets, cash interest expense and capital structure related to maintain at a certain level. After the acquisition, the amount of debt Renault increased to $29500000000 (originally $4500000000 in debt and $25000000000 leveraged buyout funds), KKR envisaged by the sale of assets and improve internal cash flow to repay the loan.

For China's M & a loan, it should further improve laws and regulations, implement the specific implementation details. Play the intermediary role of intermediary financial institutions, commercial banks should not only provide the acquisition of loans, but also act as a financial adviser. For the construction of credit rating to.

 To be sure, the acquisition of loans in China has a vast market prospect. In 2007 the international M & a market reached $5, domestic M & a market amounted to 3 yuan. Is expected to China is one of the world's most active M & M's Center for the future.

It is gratifying, the acquisition of loans a gate, the CBRC qualifications banks such as ICBC, China Construction Bank, Shanghai Pudong Development Bank, and the Bank of Shanghai to reflect rapidly, signed a "cooperation agreement" M & commercial banks to carry out cooperation with the Shanghai stock exchange, the joint launch of gold reached $10000000000 merger loan amount. According to reports the CCB with Baosteel negotiate, to provide loans, equity loans and upstream and downstream supply chain financing loans. In short, the acquisition of loans as a new type of loans, as long as a good risk control, will create a win-win situation for both enterprises and banks, have very good development space.

Three,  M & a business loan timely roll out with integration of resources, enhance the competitiveness of enterprises in the financial crisis, the economic effect to expand domestic demand and growth.

Wall Street financial tsunami brings great negative impact on the global real economy. Is not only reflected in American caused the collapse of financial institutions panic, and the global stock market crash, people's financial assets shrink, for consumption and investment is not active. Impact on the real economy big surprise people contrary to expectation. America big three auto makers face a liquidity difficulties, the government's bailout plan was rejected in parliament, the government cannot afford to wait for the big three automakers to close down there. Because of the economic recession, oil prices from a peak of $150 / barrel fell to 30 ~ 40 U. S. dollars / barrel, suggesting that the economy weather has arrived. Frankly, China because non open capital account, there is a firewall between the Wall Street financial crisis, the global economy is still in the darkness bright spot, but the impact of the financial crisis on China's real economy more than we expected, the first performance in export-oriented to Guangdong to highlight the performance of small and medium enterprises by overseas orders, labor costs increase, the appreciation of the renminbi and other factors in the wind shake and crumble, suffering in the cold, coupled with the small and medium enterprises because of the lack of collateral, the financial statements and other reasons there has been less normative financing problems, many small and medium-sized enterprises with good growth potential because of financing to support the crisis. According to reports, the national development and Reform Commission believes that China's economy by the financial crisis is mainly manifested in: one is the foreign trade import and export growth callback block; two is the significant slowdown in industrial production, raw material prices and transportation market demand; three is the real estate market and the automotive market low coincidence; the four is more difficult for some business, employment situation serious; five is the fiscal revenue growth slowed growth of foreign exchange reserves, declined for the first time. The potential risks of financial markets can not be ignored, China consumer price index decreased, there are signs of deflation. The changes in the state to deal with the economic situation, will be determined at the beginning of the tight monetary policy to moderate loose monetary policy, made 4 yuan strategic plan to expand domestic demand, especially for the "three rural", environmental protection, railways and other infrastructure construction and other livelihood projects, local government supporting policies and measures to stimulate economic growth, the introduction of the corresponding the expansion of domestic demand. Commercial bank credit to follow up, it should be said that the capital side is loose, the main market is to have demand, market demand, China economy to maintain sustained and healthy development of the great recession environment. Play the role of financial economy is very important, the State Council promulgated the "country of nine" and "30 countries", some have never been implementing policies and measures and financial instruments such as private equity, real estate trust, the acquisition of loans in our country has the high specification documents have been proposed, become legitimate financing channel, which shows the central deeply aware of the dangers of financial crisis, make every attempt to take all measures to ensure the healthy development of the housing market, the stock market, small and medium enterprises, in order to achieve macroeconomic indicators to expand domestic demand and growth.

The acquisition of loans in the early 2007 "NPC and CPPCC" by the National Association of industry and Commerce M & a plenary session provides "on improving the financing system of China's enterprises proposal" put forward, points out the significance of M & A financing system to the industry and industry integration, and the shortage is the bottleneck of the merger and acquisition of Chinese enterprises strategy, suppression of China's enterprises in the international competitiveness and open economic environment to improve the. Proposal pointed out the existing problems in M & A financing system, such as the "general loans" actually banned Chinese enterprises can make full use of bank acquisitions of equity financing, and foreign mergers and acquisitions of enterprises Chinese can get foreign syndicated credit funds to support, and the enormous amount of money. Foreign arrange corresponding financing system, but China has no system support, is the lack of financing channel of mergers and acquisitions of Chinese enterprises. Proposals on companies to issue bonds, make recommendations for the establishment of private equity fund M & A financing system. One is to modify the "loan general clauses", allow financial institutions to offer M & a special loan, in the procedures can be used to indirectly (professional body care) after direct way, so that commercial banks in risk management in place, and gradually participate in merger and acquisition financing. At the same time, can assist the corresponding limited conditions, such as the amount of financing constraints, independent credit rating; two is to modify the enactment of the new "corporate bond management case"; three is to improve the equity financing channels, to simplify examination and approval links, speed up the approval rate; four is to formulate the "measures" management buyout funds, private equity funds to participate in M & a guide. Financial institutions qualified allow initiated the establishment of specialized financing fund, such as M & a bridge loan fund. The bill is presented at the beginning of 2007, there was no serious environment facing today's global economic and financial crisis, the people's Bank of China and the China Banking Regulatory Commission bill of. This time in the "country of nine" and "30 countries" allowing commercial banks issuing loans, should be the decision-making situation, because the lack of real demand of M & A. Generally speaking, the motive of M & A: the optimal production scale, reduce agency costs, the pursuit of enterprises to reduce transaction costs, make the enterprise property lies in the development a party to the company, obtain the synergistic effect on the management and financial synergies, so there are horizontal merger, horizontal merger and conglomerate merger appears. China's real merger began in 1993, the history is not long, in addition to the merger, China's M & A and "backdoor listing" said, the goal is get listing Corporation financing platform and investors favor, get extra income. Foreign mergers and acquisitions are well-known: American Steel Corp acquisitions (horizontal mergers and acquisitions), GM's merger (vertical M & A), American Coca Cola Co to business diversification strategy for acquisitions, KKR Du Russell acquisitions, Citibank's acquisition of Travelers Group acquisition. The first example is acquired Yanzhong industrial Shenbao an acquisition merger, triple recombinant Zheng Baiwen case (typical of back door listing case), Tai Chi Group acquired TongJunGe case (typical resource integration, complementary case). Beijing to live the total recombination qiongminyuan case etc.. The motivation of merger between China and foreign countries is different, but they finally achieve integration of resources, scale economy and management and financial synergy and through the backdoor listing financing platform to build. In general the economic cycle is the best time of M & A, but in the face of the financial crisis sparked a recession, business losses, decline in performance of the economic situation, timely through mergers and strategic integration, to optimize the economic structure, promote industrial restructuring and upgrading, has a positive role to ensure sustained economic growth, so the merger loan timely introduction of macro the huge economic effect, the strategic significance is obvious.

Four, the acquisition of loans as the stock pledge loan, financial term securities lending business, is a risky business, commercial banks to strengthen risk management of M & a loan is very necessary.

M & A refers to the risk of mergers and acquisitions due to future earnings of the uncertainty of the future between the actual income and the expected return of deviation or change. Enterprise merger motivation is to maximize the net present value of the. From the perspective of the financial net present value, M & A and expected cash inflows, the expected three factors cash outflow, discount and so on, because of the influence of political, economic, legal and corporate itself subjective factors and other factors, the merger of the future net present value has great uncertainty and risk, merger and acquisition risk throughout the process of M & a the. Merger and acquisition risk does not have the objectivity, transfer of enterprises to adjust the merger plan so M & A is dynamic according to the changing situation in the process of merging with the person's volition; merger and acquisition risk through risk management is controlled, so the M & a controllable risky; like South Korea rely on large enterprise groups merged, in 97 years of the Asian the financial crisis in the troubled or even bankruptcy situation, owing to the great influence on employment, causing great social turmoil, giant enterprises so that the merging to form changes with social concussion.

In general, to subdivide the merger risk, can be divided into external and internal risk. External risks including policy risk, natural risk, political risk of transnational merger and acquisition also exist. The risk into the tax risk, interest rate risk, exchange rate risk, industry risk, environmental risk, and legal risk and cultural risk etc.. As limited by the anti monopoly law, the Commission legal restrictions related to M & A, Kam about legal risk, such as staffing plan, the acquired enterprise debt disposal, asset transfer and acceptance, guarantees and other contingent liabilities of the processing, processing complex organization system, labor force, means of production, such as intangible assets trademark, proprietary technology, business license, proprietary technology and marketing networks and so on are all mergers and acquisitions involving content. The integration of mergers and acquisitions and mergers and acquisitions business enterprise culture is not an easy task, such as cultural differences have made Guangzhou signs of disintegration of the car is a typical example. Internal risk including decision risk, financing risk and integration risk. Acquisition decision is whether M & a basis finally successful signing, but does not guarantee the success of M & a success. A merger decision since there is asymmetric information between enterprises and corporate mergers and acquisitions, mergers and acquisitions business will conceal some of their negative information lead to mergers and acquisitions after the conflict, merger and acquisition of enterprises also have certain limitations on the enterprise M & A evaluation and audit, all of these make the enterprise M & A has many potential risks. M & A financing risk is the risk that the enterprise carry on the heavy debt burden through a leveraged buyout, and when the actual benefit of the merger is not achieve the expected results, enterprises can not pay the bank interest risk; and the use of capital structure risk, namely to pay the M & a cost, payment and pay the incremental price after the merger of the fund, funding arrangements implemented properly will affect the merger and acquisition targets and bring the risk of merger and acquisition; the last is the merger and integration between enterprises mergers and acquisitions after the merger, including tangible assets and intangible assets. But because of differences between the two parties & quality of personnel, organization and enterprise idea is different, the reorganization and integration more difficult, prone to hypotaxis while God is, in quite a long time, these are the risks of M & A.

It is because of the acquisition of loans facing the risk, be sure the acquisition of loans is a high-risk loans varieties. Therefore, to strengthen the merger loan risk prevention is very important. Not long ago, China Banking Regulatory Commission launched the "loan risk management guidelines" M & Commercial Bank, made clear the risk assessment and risk management of commercial bank merger and acquisition loan. Requiring commercial banks to suit one's measures to local conditions to launch internal business process and management system, the acquisition of loan risk control within the controllable range, to meet the best balance between market demand and control loan risk. The China Banking Regulatory Commission specifically requested commercial banks should be in accordance with the general principles of management intensity is higher than that of other types of loans, loans for mergers establish internal management system and information management system, the risk of identification, measurement, monitoring and control of the M & a loan. And in the legal, financial, industry policy, knowledge and skills on M & a credit which is different from the general loan of higher and more professional requirements. Requirements for commercial banks to strengthen the management and control of specialized in business acceptance, due diligence, risk assessment, contract signing, loans, repayment, post loan management of merger loan business processes and internal control, risk management and control in the spirit of the main business processes, clear whether strategic objective and synergy is the key test of merger loan security, and how to analyze and evaluate the risk of merger and acquisition related suggestions are put forward. The CBRC also on the bank shall have the qualifications as prescribed, the commercial bank has the following five points: 1, the qualification of internal control mechanism has good risk management; 2, loan special provision adequacy ratio of not less than 100%; 3, the capital adequacy ratio of not less than 10%; 4, the general reserve balance not less than the loan balance of 1% over the same period; 5, due diligence and risk assessment team. Shows the CBRC to attach great importance to carrying out merger loan risk control.

The bank is an intermediary financing, special mechanism is operating currency risk. In the past the Commercial Bank of our country produced a lot of bad assets, both objective factors, but unavoidable factors is the subjective factors and risk management ability is poor. After the Asian financial crisis, China has carried out five class classification management, the loan in accordance with the requirements of the new Basel Capital Accord, the commercial banking market risk, credit risk and operational risk of effective risk management, the commercial banks are the establishment of internal rating model, risk measurement and analysis of the use of history data for 7 consecutive years, the commercial bank value management, use the value added to the risk adjusted profits (EVA) to evaluate the business performance, highlighting the risk factor. The acquisition of loans, is the knowledge content high loan, the Commercial Bank of our country, set up the investment banking division, the purpose is to extend the intermediate business, as some of the merger and acquisition of state-owned enterprises to provide financial advisory services, has accumulated some experience, training of a certain knowledge and skills of professional management team, this created a certain conditions for the acquisition of loans. The commercial banks should actively absorb domestic and international M & a special talent, strengthen risk management, strengthen risk control of every aspect of M & a loan, so as to meet the market demand for merger loan, will the merger loan risk control is in acceptable range, finally to maintain financial stability and security purposes.