Research On The Liquidity Risk Of The Acquirer's Leveraged Financing

With the leap-forward development of China’s capital market,the M&A market of Chinese enterprises has gradually entered a period of vigorous development,with the trend of M&A rising and the amount of M&A increasing year by year.In the process of merger and acquisition,a large amount of capital investment is required,enterprises will be largely limited by the lack of their own funds,which makes it difficult to sustain mergers and acquisitions.Leveraged financing can effectively solve the problem of funds,which is a new type of acquisition method favored by enterprises and markets.But at the same time,this method leveraging large amounts of funds with financial leverage,carries higher debt and contains greater risk.Moreover,the choice of financing tools and the rationality of the use will have a greater impact on the accumulation and outbreak of risk.In 2015,Baoneng attempted to acquire Vanke by using multi-layer nested leverage,which caused great concern in the capital market.Behind the leveraged financing,Baoneng not only faced with greater liquidity risk,but also part of financing behavior entered the regulatory blind zone and evaded financial supervision.The rationality of the financing tools using has been controversial.This paper is based on the case of the equity dispute of Baoneng and Vanke.Firstly,it introduces the background of the case and analyzes the result of hostile takeover,combs the time sequence of the equity dispute,analyses the leveraged financing strategies used by Baoneng,and points out that there are large liquidity risks in Baoneng’s financing.Secondly,we find that the most important source of funds for leveraged financing of Baoneng is the capital management plan,and the volatility of stock price has a great impact on the profit and loss of the capital management plan,and may even directly leads to the bursting of the capital management plan and liquidity risk outbreak.Within 13 trading days before Evergrande participated in the equity battle,Vanke’s share price approached the capital management plan closing line several times,but the increase of Vanke’s shares by Evergrande raised Vanke’s share price in a short period of time and helped Baoneng survive the crisis.In this paper,Vanke’s stock price is linearly synthesized by using the different stock prices with high correlation between the real estate industry,and the counterfactual stock price is constructed to predict the possible trend of Vanke’s stock price when Evergrande does not participate in the equity dispute.And the possible loss and probability of Vanke’s stock price are estimated.Then,based on the volatility rate of stock price return predicted by GARCH model,we analyze the possible loss and liquidity risk of Baoneng under the assumption that stock price is impacted by different multiple variance.Finally,this paper puts forward some pertinent suggestions on the risks and financial supervision of leveraged financing.Through the analysis,we concluded that Baoneng has excessive use of leverage in the financing process,complicated sources and structure of funds,insufficient risk control and facing great liquidity risks.If we can control the proportion of leverage and strengthen liquidity risk management,leveraged financing will help to solve capital problems and improve the efficiency of enterprises.This paper hopes the study can provide inspiration and warning to future enterprises who want to use leveraged financing,minimize the behavior of enterprises that disturb the operation of capital market,make leveraged financing play its due role,and promote the healthy and compliance development of capital market.