Research On Assessment System For Merger&Acquisition Loan Of Chinese Commercial Bank

Mergers and acquisitions is the tangible reflection of "invisible hand" in respect of resource integration. Along with the accelerated economic restructuring, industrial upgrading and enterprise growth, the contradiction between the speeding up of M&A activities and the lack of financing source has become a fierce issue. In December2008, China Banking Regulatory Commission issued risk management guidelines for commercial banks on M&A loan, which has permitted qualified commercial banks to conduct the business of M&A loan, providing a new way of M&A financing. M&A loan has become the major driving force for the fast-growing M&A market, and crucial strategic measures for the development of diversified financial services and the realization of comprehensive management. But M&A loan is a business coexisted with high risk and high revenue, whose specialties require banks not only value the collaterals but also concentrate on cash flow, not only investigate the history credit records of borrower, but also predict the future earnings of the target company, not only monitor the use of loan, but also keep track of the progress of M&A transaction. It is far more complex than the ordinary loans. Therefore, the business model, risk management and evaluation methods of ordinary loans are not applicable to M&A loan. In the meantime, because M&A loan of commercial banks still remains in the initial stage, a mature assessment system has not been formed. So the practical value of this paper comes down to the fact that the research on the M&A loan assessment system can enhance the management capacity of M&A loan and improve the risk management level of the banks.On the basis of analyzing the uniqueness of the M&A loan and absorbing the mature assessment experience from the project loan, this thesis has explored all-round contents and scientific methods of M&A loan assessment. All the analysis, with the expectation to offer an assessment model for the bank, converge to formulate an whole-process assessment system that covers not only the pre-loan phase, but also the periods during and after the loan term.The research is conducted according to the logic of "the necessity to build the assessment systemâ†'how to build the systemâ†'how to apply the system to use"This paper fits into seven chapters.The initial chapter is introduction, in which the writing background and significance are introduced, the research methods and innovative aspects are proposed, as well as the major line and framework of the thesis are framed.The second chapter reviews the research on M&A loan both at home and abroad.The third chapter falls upon the theoretical basis of M&A loan assessment. By summarizing the basic concepts of M&A loan and its assessment, and discussing the M&A enterprise valuation theory, synergy theory and the project assessment theory, this section forms the theoretical support for the construction of M&A loan assessment system.The fourth chapter, one of the major chapters, concentrates on the formulation of M&A loan assessment system of commercial banks. Firstly, through analyzing the practical problems existed in the M&A loan management and assessment, the thesis points out that the construction of an assessment system can contribute to solving these problems, propelling the rapid and sound development of M&A loan. Then, the thesis studies the specialties of M&A loan and the advanced concepts of project loan, laying the foundation for building the assessment system for M&A loan. Finally, according to the above analysis, the overall framework of the three-stage assessment system is designed. Different from the common corporate loans, the assessment during the loan term is raised to an important position.The successive chapter elaborates on the major contents and methods of the assessment system. Taking the assessment framework designed in chapter four as starting point, this chapter emphasizes on different focuses of three different periods, in accordance with the two major lines of M&A project and loan project. In terms of M&A project assessment, the pre-loan assessment should judge whether the M&A activity stems from strategic motives and whether it can produce synergy effect; the mid-loan assessment should keep track of the integration progress; and the post-loan assessment should analyze the result of this M&A activity and the accuracy of assessment. As for the loan project assessment, the focus of pre-loan assessment is the credit warrant evaluation on the ground of analysis in financing demands reasonability and future solvency from free cash flow. And its mid-loan assessment emphasizes on the repeated periodically assessment of stability of repayment source and the target company’s future repayment ability. The crucial task of post-loan assessment lies in the comparison between the forecasting result and the actual repayment, as well as summarizing the experience from this project.Chapter sixth is case analysis, which applies the assessment system and methods to analyze the M&A loan issued by Bank of China to Guangdong Golden Dragon Co., Ltd. This chapter demonstrates how to apply the assessment system to practical M&A loan operation. Also, the validity and applicability get tested in the process of case analysis.The final chapter is the conclusion, that is, to summarize the major findings of this thesis, and illuminate the further improvement direction of this subject.The contributions of the whole thesis are embodied in the following aspects.First of all, the creativity of this thesis lies in the construction of a whole-process assessment system for M&A loan. The previous studies are limited to the overall research on the regulations and credit risk management of M&A loan. But this paper specifies the operation and risk management problems to the detail measures——the assessment of M&A loan. It is a new breakthrough for both theoretical study and practical operation of M&A loan to propose a three-stage continuous assessment framework.Furthermore, the practicality is the assessment contents and methods for the double projects. Combining the theory with practice, the major assessment contents and methods for M&A project and loan project are closely related to the particularities of M&A transaction and M&A loan. The research result, therefore, is conductive to the loan operation of banks.Lastly, the scientific contribution of the thesis is the exploration of the M&A loan assessment methods. In the light of the characteristics of M&A transaction and the regulation of M&A loan, this thesis discusses the evaluation methods of M&A loan repayment ability, especially the free cash flow discounted value, contributing to enrich the assessment models for M&A loan.