Some China companies saw the short-board effect of financing ability on enterprise development in overseas subsidiaries, and made localized financing overseas, which achieved good results. Taking the United States as a case, this paper aims to reveal the "secret" of overseas localized financing of China enterprises by introducing the ways in which China enterprises implement localized financing in the United States and the challenges that China enterprises will face in financing in the United States.
Overview of American financing
As the largest superpower in the world, American companies with China background have many advantages in financing in American capital market. First, American loans are cheaper at interest rates; Secondly, the characteristics of American capital market are rich and diverse sources of funds, and financing methods and channels are also very diverse; Thirdly, once an American company with China capital background successfully raises funds in the US market, it will obviously promote the company's financing work in other countries, because the credit rating report in American financing projects can also be applied and evaluated in other countries and regions. The financing methods that can be applied or popular in the United States are not much different from those in China in terms of financing types, mainly including loans from banks, financing in the private debt market, financing in the public debt market and public offering of shares. The first three are debt financing instruments, and the last one is equity financing instruments.
No matter what financing methods American companies with China background adopt, they can't do without American financial markets and financial institutions. Compared with other countries, the financial market and financial institutions in the United States present a very complicated situation. The financial market in the United States can be roughly divided into capital market, money market and foreign exchange market, and basically all corporate financing activities take place in these two markets. Capital market includes bond market, stock market, mortgage market and loan market. The money market includes acceptance market, bill market and short-term financial voucher market. The foreign exchange market is a financial market in which many banks participate, and banks will conduct spot, forward and swap transactions in this market.
The capital market and money market in the United States have incomparable characteristics in other countries: First, the capital market and money market in the United States are more free and mobile, and the cooperation and circulation between financial institutions in the United States and financial institutions in other major countries in the world are more frequent. The continuous development of information technology makes cross-border financial business very common and universal.
Second, American financial institutions are huge and complex. The financial system of the United States consists of the Federal Reserve, banking financial institutions and non-banking financial institutions. Financial institutions in the United States can be divided into banks and non-bank financial institutions. However, there are too many financial entities in the two types, which makes people dazzled and confused. The classification of banks in America is very complicated. Besides the common commercial banks in China, there are also savings companies, loan companies, credit companies and mutual fund banks. The types of non-bank financial institutions are also more diverse. In addition to some domestic insurance companies, fund companies and finance companies, there are also financial entities that we are not familiar with, such as commercial finance companies, pension funds, financial service companies, mutual savings banks (although called banks, they are non-bank institutions), surviving lending associations, investment trust funds, various financial leasing companies, and technology and finance companies and Internet finance companies that are popular this year. If you don't know the legal business scope and business content of these institutions, you can't grasp the essentials of financing, and you may also violate the requirements of financial supervision regulations.
Third, the related transactions of American capital market, money market and foreign exchange market are complex, the structure of financial products is multi-level, and various financial entities participate in the transactions. Different markets have different standards and requirements for related party transactions, and different markets and transactions have different regulatory priorities and departments.
Matters needing to be considered before financing for American companies with China background.
Reflections on the Choice of Equity Financing Mode
To choose a suitable financing method, from a big perspective, we can first decide whether to adopt equity financing or debt financing. This consideration is no different from domestic debt financing and equity financing. If you choose equity financing, the financing process is more reflected in the process of corporate restructuring or mergers and acquisitions experienced by American companies with China background. However, if the company wants to get money in this process, it must be realized through equity capital increase, not equity transfer.
There are many domestic investment institutions in the United States. Among the top global 100 investment institutions, American investment institutions occupy 70% of the list, while among the top 10 investment institutions, American investment institutions occupy 8 seats. Therefore, if American companies with China background choose equity financing, it is undoubtedly in the country with the densest investment institutions and the fiercest competition, which is a more favorable aspect of equity financing. However, due to the concentration of a large number of equity investment institutions in the United States, the equity investment industry has become very mature, and equity investment institutions are very proficient in the skills of investigating the target company, judging the profit forecasting ability and analyzing the future growth.
If there seems to be an equity investment industry with "less projects and more money" in China, American companies with China background may not be able to face such a favorable situation. If they want to get high PE multiple investment, I'm afraid they need to make great efforts to clarify the company's profit model, growth and sustainable development. At the same time, as an American company with a capital background in China, investors may question the integrity of an American company with a capital background in China, and even question and appeal how investors can control and manage the target company after investment. These are the contents that the company needs to fully consider before the equity financing plan. In details, American companies with China background should also consider the uncertainty of future operation brought by trade friction, such as the impact of anti-monopoly and anti-dumping on the company; The impact of tax laws and policies in China and the United States on the company; China's parent company's strategic adjustment will affect the company and so on.
The same is the way of equity financing. In the United States, IPO is also a major way of equity financing. There are many stock exchanges in the United States, besides NYSE and NASDAQ, which are familiar to China people, there are also some stock exchanges that China people are not familiar with, such as Midwest Stock Exchange, Philadelphia Stock Exchange, Cincinnati Stock Exchange and Pacific Stock Exchange. American companies with Chinese background who meet certain listing conditions can try to find stocks and list them on the above-mentioned stock exchanges suitable for their own companies. There are many articles about listing in the United States, so I won't repeat them here.
Thoughts on choosing the financing mode of creditor's rights
If American companies with China background choose debt financing to obtain funds, they must pay attention to the setting of financing scheme before debt financing has started. From the perspective of debt financing, domestic financing projects, especially bank loan projects, often do not need to arrange financing plans in advance, nor do they need to spend a lot of energy on the design of financing plans, mainly because domestic financing methods are more stylized, the structure and types of financial products are relatively fixed compared with the United States, lenders have designed relatively stable financing plans and structures, and there are not many personalized customized products. Therefore, managers of American companies with Chinese background often bring the above mindset to the United States, ignoring the formulation of financing plans and not understanding the structure of financing products and the corresponding legal agreements and legal responsibilities, which will eventually bring many unpredictable risks to the company.
The financial products in the United States are very diverse, and the structure of financial products is relatively complex, which is more attractive to lenders. Different lenders have different preferences in the formulation of financing plans, and some settings can be made considering the actual situation and needs of lenders. The legal nature of different schemes and the implementation of legal responsibilities for borrowers are also different. Therefore, the managers of American companies with China capital background should calculate the capital demand according to the company's development strategy, decompose the ways to solve the capital demand, and first determine the total amount of financing, which funds come from shareholders' investment and which funds are solved through localized financing. At the same time, further analysis is needed to determine the total amount of financing. For example, the long-term and short-term matching arrangements of loans should be planned in advance, because lenders of long-term and short-term loans can choose different financial institutions; For another example, it is necessary to budget the loan interest rate ceiling for different periods, and at the same time, it is necessary to test the sensitivity of the budget of the interest rate ceiling and financial indicators such as cost and profit.
You should also evaluate your own credit rating before financing. Credit rating is positively related to interest rate, and credit rating has a very important correlation with the company's reputation, financial data, repayment ability and so on. At the same time, based on the evaluation of this project, we can also arrange the collateral and guarantee methods that the company can provide in advance. Good collateral and guarantee methods can often effectively reduce the company's loan interest rate. Because there are many borrowing institutions in the United States, American companies with Chinese background can understand, compare and analyze the advantages and disadvantages of different products of different institutions and their suitability for the company by organizing "roadshows" of borrowing institutions. More importantly, they should study and analyze the legal liability agreement of loan products in detail to avoid the company taking unnecessary responsibilities. The financial statements required by the lender shall not be "decorated" to avoid affecting the company's credit index; At the same time, some lenders will ask the company to provide detailed current business reports and future business commitments, and these data must be provided cautiously. Different lenders may pay slightly different attention to borrowers. For example, the loan providers of life insurance companies and some other institutions have higher requirements for the stability of the company, and are more concerned about the company's net assets, the ability to pay cash interest, and the interest rates of long-term debts and assets. It will also put forward some substantive restrictions on the company's asset contribution, external guarantee and foreign investment, and take these requirements as the premise of lending.
In addition to the traditional one-to-one or syndicated loans mentioned above, public issuance of bonds by American companies with China background is also the main way of debt financing. However, this method is only applicable to American companies with Chinese background whose financial scale and business scale reach a certain level, otherwise it will be difficult to issue bonds, and at the same time it will bear a lot of related expenses. Issuing corporate bonds or corporate bonds is more complicated and "technical" than the above-mentioned one-to-one or syndicated loans.
The design of bond varieties, whether it can be converted into shares, whether to choose public offering or private offering, the design of early redemption clause, the design of early sale clause, the setting of floating interest rate clause and the setting of bond term are all issues that issuers need to consider. Including what kind of bonds to choose, is also a problem that issuers need to consider, because there are many types of corporate bonds in the United States, and appropriate bonds must be issued according to the company's situation. For example, enterprises with good credit status can issue corporate credit bonds; But if the credit rating is not so high, it may be necessary to issue mortgage bonds or guarantee bonds; We can also try some innovative bonds according to the company's situation, such as industrial development bonds for enterprises to buy factories, land and machinery and equipment, and pollution control bonds for enterprises to buy environmental pollution equipment. In addition, the periodicity of corporate bonds or corporate bonds in the American market is obvious, and in what window period it is issued also directly affects the sales situation and interest rate of bonds.
Recently, with the increase of real estate and other fixed assets projects carried out by American companies with China background in the United States, project loans have gradually increased. Borrowers who are willing to provide funds for real estate projects or cooperate with borrowers mainly include commercial banks, pension funds, real estate investment trusts and credit companies. As a borrower, it should be noted that different borrowers may have different loan proportions, borrowing intentions and preferences for the same project. The project loan model of commercial banks may be similar to that in China. The amount of loan funds that commercial banks are willing to provide mainly depends on the project situation, which is different from the fixed loan ceiling of 70% for domestic project loans. Sometimes the borrower can get 100% of the total project loan funds.
American pension funds and domestic insurance funds belong to a large number of fund holders, and their fund holders have the same desire to obtain a more stable return on funds, and their demands for loan principal and income security are greater than their demands for high income. Therefore, pension funds tend to invest in more stable real estate developers, so their investigation and verification process for the project will be relatively long, and they will pay more attention to the stable profitability of the project. Although the amount of loan funds that pension funds can provide will be relatively large, which is very attractive to real estate developers, it is not a good choice for borrowers who want to get funds quickly in the short term.
Borrowers in different situations should choose different borrowers to obtain funds, but for credit companies, all borrowers should be cautious, because although credit companies lend faster and are willing to provide loans for some risky projects, based on the principle of "high risk and high income", their requirements for interest rates are very high. Faced with the interest rate income requirements, interest payment methods, loan term, etc. proposed by the credit company, the borrower should conduct sales simulation and financial calculation to avoid the inversion of cost and income.
Pay attention to the importance of credit in enterprise financing
No matter how American companies with Chinese background achieve their financing purposes, they need to pay close attention to and maintain their credit status. Except junk bonds, almost all other bonds and loans require the company to provide its own credit rating report, which can directly determine the interest rate level, guarantee method and the amount of other expenses that the company needs to bear. American companies with Chinese background should first understand that the key problem to be solved in credit rating is to reveal to investors the possibility of default of the company, and whether the company assessed in the credit rating report is willing and capable of performing its debts according to the contract. The credit rating report is essentially an independent third-party expert opinion and a reference opinion for investors to read.
In addition to paying attention to data preparation and field investigation in the process of credit rating, it is more important to pay attention to the follow-up and re-evaluation process after the completion of credit rating. If the company's credit status changes significantly during the re-evaluation, the rating agency will make corresponding major adjustments to the rating results. In the process of credit rating, American companies with China capital background should not only pay attention to the financial risk safety indicators such as asset structure, profitability, cash flow and total assets, but also pay attention to the contents of soft credit, such as the control of industry risks, operational risks, the elimination of related transactions and improper guarantees, and the role of self-management in controlling risks. In addition to the influence of corporate management level on the credit rating, American companies with China background must pay more attention to the influence of the credit status of the company's senior managers on the company's credit rating. Economic scandals or irregularities of senior managers often affect the company's own credit rating.
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