The gambling agreement, that is, the "valuation adjustment mechanism", refers to the "temporary non-dispute" between investors (clients) and financiers (agents) regarding the uncertainty of the company's future operating performance. When an investor (or acquirer) and a financier (or transferor) reach a financing (or merger and acquisition) agreement, both parties list a series of financial terms to ensure their respective interests and to prepare for uncertain future situations. kind of agreement. If the agreed conditions appear, the investor can exercise a right; if the agreed conditions do not appear, the financier can exercise a right. Therefore, the betting agreement is actually a form of option.
Through the design of the terms, the VAM agreement can effectively protect the interests of investors. However, due to various reasons, the VAM agreement has not yet become an institutional setting in my country's capital market, nor has it been frequently adopted. However, when international companies invest in domestic companies, gambling agreements have been widely adopted. There are cases of successful application of gambling agreements in investment in entrepreneurial enterprises and mature enterprises, and in the end the enterprises also achieved good results.
Chinese companies frequently fall into "gambling crises"
It has been reported that Country Garden and Merrill Lynch lost HK$440 million in gambling. In the past few years, Mengniu, Yurun Food, etc. have achieved win-win bets with international financial capital. However, as the financial tsunami has plunged the global economy into trouble, not only CITIC Pacific and Shennan Electric, but also famous companies such as Taizi Nai, China High Speed ??Transmission and China Talent Network have recently fallen into a "gambling crisis."
China High-Speed ??Transmission and Morgan Stanley
Betting against foreign investment banks is not uncommon. China High-Speed ??Transmission, a Hong Kong-listed company that was once favored by fund managers, is now in crisis due to a sharp decline in its stock price. It is reported that the equity swap operation between China High-speed Transmission and Morgan Stanley has a nominal principal of HK$1.11 billion and an expiration date of May 14, 2011. If the stock price of China High-speed Transmission is higher than HK$13.78 by then, Then Morgan Stanley will pay China High Speed ??Transmission. If the price is lower than HK$13.78, China High Speed ??Transmission will pay the amount. The stock price has now fallen to a new low of HK$5.65. Yesterday, the company's share price fell to HK$4.70.
According to calculations, for every HK$1 drop in China High Speed ??Transmission's share price from HK$13.78, Morgan Stanley will have to pay HK$81.4 million. It has now entered a vicious cycle: the lower the stock price falls, the greater the loss, and the greater the loss, the further the stock price falls.
China Talent Network and Monster
At noon on October 8, global online human resources giant Monster Worldwide (Monster’s parent company) announced that it had completed the acquisition of China Talent Network. According to the terms of the transaction, Monster purchased the remaining 55% stake in China Talent Network for US$174 million in cash.
In early 2005, China Talent Network reached an agreement with Monster. Monster will help China Talent Network complete its IPO within three years; if China Talent Network fails to go public within three years, Monster will fully acquire it.
Taizinai, Actis, Morgan Stanley, and Goldman Sachs
On October 30, internal managers of Taizidai Group revealed to the media that an asset liquidation group composed of Goldman Sachs and other institutions , has entered the Taizi Milk Group and basically taken over all the work of the Taizi Milk Group.
Informed sources revealed that Li Tuchun may have lost his controlling stake due to a gambling agreement. Pan Yi, spokesperson of Taizi Milk Group, said that Li Tuchun "encountered a particularly unequal agreement in business negotiations." It is reported that when Li Tuchun signed the investment agreement in 2007, he not only signed a liability agreement, but also signed a risky gambling agreement. In the terms of the final US$73 million financing agreement between the two parties, the following content is hidden: In the first three years after receiving the US$73 million capital injection, if the Taizi Milk Group’s performance increases by more than 50%, the other party’s equity can be adjusted (lowered); if completed Without 30% performance growth, Li Tuchun will lose his controlling stake.
There is no guarantee that Shennan Electric will not be the second largest company in China Aviation Oil Corporation
Domestic investors do not seem to be familiar with Jierun, a subsidiary of Goldman Sachs, but in fact they are already old acquaintances with Chinese companies. . Four years ago, it was Jierun Company that single-handedly directed the sensational "CAO Incident". At that time, China National Aviation Oil sold a large number of call options on crude oil under the careful guidance of Jierun Company, and then continued to cover its positions, ultimately losing US$550 million. For this reason, CAO also took Jierun Company to court in 2005, claiming that the company deliberately misled and caused CAO's huge losses. But in the end, China Aviation Oil withdrew the lawsuit in 2006, silently swallowing the bitter fruit of losses.
Four years later, Goldman Sachs used the same method to target Shennan Electric. However, it was bullish four years ago and now it is bearish. Goldman Sachs is always the winner, but domestic companies and ordinary people are the ones paying. people.
Recently, Shen Nan Dian A stated that in March this year, relevant personnel of the company signed two oil option agreements with Jierun (Singapore) Company, a wholly-owned subsidiary of Goldman Sachs Group, without authorization. .
In the gambling agreement signed by Jierun Company and Shennan Electric Power Co., Ltd., which will be effective from January 1 next year to October 31, 2010, the profit condition of Shennan Electric Power Co., Ltd. is that the floating price is higher than 62 US dollars/barrel, but when the floating price is higher than US$63.5/barrel, no matter how high the oil price rises, the maximum monthly profit of Shenzhen South Electric Power Co., Ltd. will remain at US$300,000. Unlike Shenzhen Nanjing Electric Co., Ltd., Jierun Company is betting on the drop in oil prices. If the floating price falls below US$62/barrel in the future, Jierun Company will make an additional US$400,000 in profit for every US$1 drop. If the international oil price is at or below 50 US dollars per barrel, it will bring a monthly loss of 5.8 million US dollars to Shenzhen Southern Power.
Recently, with the sharp decline in oil prices, the investment risks of Shenzhen Southern Power have suddenly become apparent. Some analysts even predict that the price of international crude oil will fall to US$50/barrel. If this is true, Shennan Electric will suffer heavy losses.
Regarding the huge losses faced by Shenzhen Nandian, industry insiders believe that this is just a naive bet. In two years, anything can happen. The Goldman Sachs subsidiary should have made a beautiful report at that time, and Shennan Electric also considered that once the oil price really fell below 62 US dollars, the cost of power generation would also decrease, and the agreement would have a hedging effect. But all this cannot conceal the unlimited risks of Shenzhen Southern Power, which may cause a fatal blow to the company and investors.