The Breakthrough In The Management Buyout Financing Difficulties In China

MBO, a large-scale and complex capital operation procedure requiring a large amount of capital input, originated in the 1960s and 1970s of the United Kingdom. However, only a few years ago when MBO came into use in China; thus it is still a novelty. On account of the constraints from the old financial system and the legal system, the financing means available to MBO are very limited and hence it encountered numerous obstacles in its practical application. In this paper, empirical research methodology is adopted explore the specific obstacles existing in the area of China's MBO by studying a real case of MBO in our country, with the aim of finding out a way out for the MBO financing plight in the financial system and legal system.The thesis is divided into four parts:Part one: the introduction and analysis of MBO case of Sichuan Quanxing Group MBO case. The paper selects the example of MBO case of Sichuan Quanxing Group, which is one of the most influential MBO case in China and introduces the main elements and relevant circumstances in it, and express the two following views on the case analysis method: firstly, from the perspective of the analysis method, the case study should not only involve the time when MBO was carried on, but the whole process of MBO should be included in the study material in a comprehensive and overall analysis. Second, this paper proposes the key analytical points upon the MBO case, i.e. the close relationship between business and specific issues concerning financing sector.Part two: the analysis of legality and reasonableness of the areas of financing in Quanxing MBO. Mainly based on the Quanxing MBO case, the author examines the analysis of legality and reasonableness of the areas of financing. In legitimacy: first of all, state-owned enterprises executives spend huge amounts of funds implementing acquisitions, and the relevant funds of unknown origin makes them vulnerable to risks of criminal liability; secondly, the behavior that Sichuan Quanxing Group issued the Trust products and use trust loans to implement MBO is a clear violation of China's " General Clauses of Loans "; finally, upon the examination of operation of financing and the practice that they got the listed company held by the target enterprises into loss, the practice which violates the relevant laws and regulations and consequently undermine the normal order of the securities market. After studying the specific issues existing in the sector of financing in the case, the thesis further explores the deep-seated reasons for the practices mentioned above and reflects the widespread financing plight in our country's MBO. In the management of the transition of China's MBO are prevalent in the financing difficulties.Part three: the financing plight in China's MBO. The argument in this paper is expanded to the perspective of China's MBO practice, and reviews the specific performance and causes of the widespread financing plight. The financing means available to China's MBO are very limited and have encountered many obstacles. The first one is the restrictions in the approval process and the use of funds in loans financing. The second one is the legal obstacles towards issuing subject, financing purposes, the bond rate, the issuance of bonds conditions in corporate bonds. The third one is that the trust financing channel itself faces the numerous restrictions on the conditions. More worse, in 2005 the State-owned Assets Supervision and Administration Commission of the State Council and Ministry of Finance jointly issued the "Temporary Regulations on the Transfer of State-Owned Property Rights to the Corporate Management", which prohibits the management from the indirect transferee of property rights of state-owned enterprises by means of trusting. All these lead a more tortuous path for the financing of management buyouts.Part four: the breakthrough of the financing plight in our country's MBO. On account of the fact that the financing of enterprises depends on the fundamental structure of a country's financial system, the paper holds that the breakthrough of the financing difficulties in China's MBO should rely on the deepening of the reform of China's financial system and the sound establishment and improvement of the relevant laws and regulations.Therefore, in this part, the paper comes up with the suggestions on how to broaden the financing channel in MBO from the angles of both the financial system and the legal system. The first suggestion is to amend the restrictive provisions upon the use of loans to provide the necessary financing support for the MBO. The second suggestion is to increase the proportion of corporate bond in enterprise financing structure and improve relevant laws and regulations. The last suggestion is to encourage the institutional investors to participate in MBO, and attach special importance to the full function of the trust system and improve the information disclosure rules in the trust mechanism.