论联想集团的长期融资模式及其融资结构分析

论联想集团的长期融资模式及其融资结构分析

作者：朱逸文

来源：《价值工程》2010年第12期

摘要:本文主要归纳和采用了金融与财务理论的基本原理和分析方法,在对“融资理论”的认识有所突破和创新的基础上探讨联想集团的融资结构、长期融资模式方面的一些问题,并结合企业内部与外部融资方式及收购IBM全球PC业务的实际案例,进行了富有针对性的实证研究。本文研究目的是希望促进现代企业融资模式和融资结构的优化,提升企业自身效率,巩固中国资本市场和财务管理及企业融资的理论基础。

Abstract: The paper focuses on the basic principles and analysis method of monetary and financial theory. It brings new meaning to Lenovo Group's financing structure and investigates its long-term financing patterns. The article gives a theoretical and empirical analysis combines internal and external financing model and actual case of Lenovo Group purchased of IBM's PC business.

Purpose of this study is to promote the modern corporate finance models,optimize financing structures and improve their efficiency. Finally strengthen of China's capital markets and financial management and corporate finance theoretical basis.

关键词:联想集团;融资模式;长期融资;债务结构

Key words: Lenovo Group;financing pattern;long-term financing;debt structure 中图分类号:F275 文献标识码:A文章编号:1006-4311(2010)12-0004-03

1Introduction

All of the companies,enterprises need funds to maintain their development;this will involve

financial management. The challenge of it lies in the continuously changing and increasingly complex environment in which financial decisions require to make. Simple financial theory shows that the total value of a company should not change if its capital structure does. This is known as capital structure irrelevance,or Modigliani-Miller theory(Keith Pilbeam,1998:326),however,nowadays MM theory would not be appropriate for usual times. Business entities must be aware of establishment the

importance of improving the financial system. A detailed,accurate and transparent financial statement will allow them to earn more opportunities to their financing. This paper seeks to facilitate an application of contemporary financial management theory. Financial management contains many elements,financing theories in this area which will be the core contents of this study. The paper will focus on the long-term finance of a selected company Lenovo,and its rational of financing mix the

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relevant long-term financing theories. Basically,long term finance is a form of finance that is provided for a period of more than a year,and provided to those business entities that face a shortage of capital. This essay will divided into two main parts: first part will research on the Long-term financing theory with Lenovo Group;the second part will provide the practical analysis and then make the reasonable conclusions.

2Theory review and analysis

Long-term financing is mainly from the capital market,and has resolved a long-term fund needed for business development. It focus on internal financing and external financing,also called the direct financing and indirect financing. ①Internal financing

Internal financing means business entities use their profits as a source of capital for new

investment(Robert W. Kolb,1996:21). It does not require actual payment of interests or dividends and won't reduce business cash flow. Usually the cost of internal financing is far less than external.

However,through research,at most time of its internal financing in Lenovo group was difficult to meet their financial needs. Then this will need external financing to achieve the sufficient funds operating.

②External financing

External financing means the funds that companies or enterprises obtain from outside of

themselves(Keith Pilbeam,1998:261). It has become the important ways to obtain funds for Lenovo group. External financing can be divided into debt financing and equity financing;this will be detailed analysis in the following contents.

The risk of long-term financing appears to be more than short-term financing because long-term development of business entities has more uncertainty. To develop a good business plan is a very crucial step to instigate investors and Lenovo Group seemed complete it very successful.

Lenovo,China's largest and world fourth of computer manufacturer,and it simultaneously uses several means of financing. The main purpose of the financing is to preserve sustainable development and capital expansion. Capital operation has become the necessary factors to promote Lenovo's rapid development over the past decade. It has shortened the construction period and reduced of market risks. The most successful cases in the development process of Lenovo Group were purchase of IBM's PC business. The final purchase price reached 0.8 billion U.S. dollars in cash and 0.45 billion U.S. dollars stock(Lenovo announcement,2004). Through this acquisition,Lenovo gained the high-end brand of PC resources in the international market. The main financing patterns to realize of this acquisition were international bank loans,and bond financing. Obviously,these two ways were all belong to the debt financing. 2.1 Debt financing

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Long-term debt financing is financing a company by selling the bonds,notes or mortgages held by the business(Business finance,2008). It is more commonly known as selling bonds or debentures. Compared with Lenovo Group,the main sources of funds from the acquisition were relying on the debt financing. It has following types: ①Non-traded debt

After statistics,there were 0.4 billion of the total purchase funds 1.25 billion U.S. dollars come from the bank loans;included BNP Paribas Bank,ABN AMRO Bank and Standard Chartered Bank. The advantages of bank borrowing are procedures relatively simple and operate more

flexibility,availability. According to the annual financial statements 2006,Lenovo Group has been fully repaid the bank loans of total 0.4 billion U.S. dollars in the year March 31. ②Market debt

The debt market is any market situation where trading debt instruments take place. Examples of debt instruments include mortgages,promissory notes,bonds,and certificates of

deposit(WiseGeek,2007).Lenovo Group has specific used corporate bonds. The nature types of their bonds were investment and redeemable. Operation through the bonds,Lenovo mainly attracted 0.15 billion U.S. dollars which 0.08 billion from the Texas Pacific Group,0.05 billion from the Trans-Atlantic Group and 0.02 billion from the Newbridge Capital Group.

Debt finance also includes asset-backed securities financing. However,ABSs has not been much used in Lenovo Group of IBM's PC business acquisition case. Through the above-mentioned patterns of financing,it greatly enhanced Lenovo's capital operational efficiency. Viewed and analysis through the literature,some advantages and disadvantages of debt financing can be summarized as follows:

Advantages: Business owners still have full autonomy to operate their capital.Relative to equity financing,it has simple procedures,and lower financing costs. To some extent debt financing alleviates the tax burden on business entities,and also avoids dilution of equity.

Disadvantages: Over the issuance of bonds will affect the company's capital structure. Loans from the bank,business entities must open their own financial management information to the bank. Relative to equity financing,over-reliance on debt financing will lead selves to take heavy interest burdens,and also makes high-risk operation.

After comparing,they should take the debt financing or not,how to point out a reasonable proportion of their financing mix,and what is the characteristic and principle of Lenovo's financing mix,these questions will be detailed analysis in the following chapters. Below the paper will focus on another financing pattern called equity financing. 2.2 Equity financing

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Equity financing is when business entities raise funds by issuing common or preferred stocks to investors(Toolkit,2008). The most basic hurdle to equity financing is finding investors who are willing to buy into their business. However,the amount of equity financing that business entities undertake may depend more upon their willingness to share management control than upon the investor appeal of the business. There are several major types of equity investments,such as initial public

offering,equity loans,recapitalization and merger financing. Lenovo Group has adoption of additional equity financing methods to achieve equivalent to 0.45 billion funds from total purchase funds 1.25 billion U.S. dollars. It has issued up to 0.8 billion new shares and 0.9 billion new non-voting shares credited as fully paid(Lenovo announcement,2004).As a result,IBM will hold approximately 18.9% of the total enlarged issued share capital,in each case,of the company immediately following the initial closing. This will not result in any change of control of the company.

Through Lenovo's financial report,it may summarized that use of equity financing could also increase the capital operational efficiency. Reviews from the literatures,some main advantages of equity financing are: relative to debt financing it reduces the financing risk,equals to permanent financing,with no expiration date and no restitution. It disadvantages are: cumbersome

procedures,easily lead to equity dilution and has relatively high financing costs. Finally,as said it before,debt and equity financing have together form the primary means of the long-term financing. Following this paper will focus on the rational of financing mix in the Lenovo Group,and provides an exhaustive account of their financing behavior,their financing principles and characteristics. 3Financing mix and analysis

Debt and equity financing provide different opportunities for raising funds. The simplest measure of how much debt and equity a company is using currently is to look at the proportion of debt in the total financing(Keith B. Johnson,1996:365). This ratio is called the debt to capital ratio:

Debt to Capital Ratio = Debt /(Debt + Equity)

Excessive debt financing may leads business entities have too much debt,then their capital operation becomes risky and overextend with an unsafe investment. Similarly,overfull equity financing indicates that capital has used unadvantageous as leverage for obtaining funds. How to found the most suitable allocation of financing mix proportion; first this paper will deal with a case study.

3.1 Lenovo case study

Lenovo Group and IBM entered into the asset purchase agreement in 2004,pursuant to which the Lenovo agreed to acquire from IBM certain assets and the consideration to be paid by the Lenovo is 1.25 billion U.S. dollars. In the previous content,it has given a description of their financing data and methods,table 1.0 which listed further clearly financing information as following. Table 1.0: Financing sources,Lenovo Group 2004

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Data source: 'Substantial acquisition relating to PC business of IMB' by Lenovo Learning through the second chapter we know that bank loans and bond financing are subordinate to debt financing,using the formula:

Debt to Capital Ratio except cash flows = Debt /(Debt + Equity)=0.55/(0.55+0.45)=55% Consequently,the result concludes that in this financing case,financing mix proportion of debt and equity are 55% and 45%. It's characterized by both of debt and equity financing were highly used. After analysis,the purpose of Lenovo made such financing mix proportion because their original funds only have 0.25 billion U.S. dollars,in order to fulfillment the purchase agreement,they still need to paid a billon dollars. Through the efficient mix of debt and equity financing methods could quickly fill their funding gaps.

3.2 Long-term financing strategy

Reviewing their 2004 annual financial report,Lenovo Group purchased IBM PC business was almost their top sensational and influential capital operation behaviors. Similar to the 1:1 debt and equity financing patterns allowed them to fill the funding gap in time. Meanwhile,Lenovo's capital operational efficiency has also improved. The completion of this purchase contract has played a positive role for Lenovo's future global strategies. However,through the further analysis from their

annual financial report,it found that Lenovo Group has a surprisingly high debt ratio during that period. The reason of their highly debt ratio because their own cash flows was significantly lower than the financing funds,and they have huge financing total cost. As a result,Lenovo's operational risk became higher and their ability to repay the debts got worse. According to contemporary financial

management theory,financial leverage is an important indicator to measure the business financing behaviors; it reflects the amount of debt used in the capital structures. Financial leverage divided into both long-term and short-terms. Through the comparative analysis,highly debt ratio in short-term will make a negative impact for Lenovo's future development.

By observing Lenovo's 2005 to 2008 annual financial report,generally it discovered that their long-term financial leverage was much lower than short-term financial leverage. Compared

2004,Lenovo's debt ratio also have significantly dropped,normally kept at 35% in recent years(Lenovo annual report,05-08)and still has downward trend. These reflected Lenovo Group has cleared most of their long-term debts. Consider from Lenovo's long-term financing strategy,the above views explained that their financing mix proportion have changed a lot. In most time they preferred to use equity financing instead of debt financing. Following section will focus on the features of Lenovo's new financing mix strategy,their principles and reasons of why they changed their financing mix proportion.

3.3 Current situation and outlook

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Continuing above analysis,in recent years,Lenovo's annum financial report reflects that except price volatility from the stock splits and dividends,their long-term debt ratio has maintained in a lower level and majority times remained at 35%. Combined with the contents of the previous chapter,this kind of results could fully displayed Lenovo preferred to use equity financing instead of debt financing in long-term financing and the aim was to keeping a lowly debt ratio. After an in-depth analysis,there are several reasons may point out why Lenovo Group changed their original financing mix proportion after purchased IBM PC business.

These years Lenovo has an excellent market operation capacity; different types of products meet the need of different groups of customers,their sales performance continues rising.

Group capital rising and business current funds increasing. Their gross profit,cash and cash equivalents and net cash reserves respectively reached 2.45 billion,2.19 billion and 1.63 billion U.S. dollars(Lenovo annum report,2008). Compared to 2004,net cash reserves raised nearly 700%; this shows their cash flows are more sufficient than before.

Recent financial announcements from Lenovo Group have not mentioned any major asset purchase agreement.

Lenovo's expansion development itself was a risky business strategy,and plus all the points described above,in order to avoid high-risk; keeps more stable financial situation,Lenovo Group has changed their financing mix proportion. Through the whole chapter analysis,according to their current operating conditions,Lenovo preferred to use equity financing instead of debt financing is appropriate. 4Conclusion

Nowadays,in a dynamic competitive environment,business entities in order to get their financial management successful,first of all they have to work out a suitable commercial development plan. Contemporary financial management theory is a summary of the financial management activities; and this theory can evaluate the financial management behavior whether is reasonable. It involved in four concepts: competition concept,benefit concept,currency values concept and risk concept. This paper mainly worked with long-term finance of both debt financing and equity financing. It has carefully evaluated with an empirical perspective of Lenovo's basic principles for its financing mix proportion. Finally,through an in-depth investigation and analysis,under the long-term financing area Lenovo's rationales and principles are reduce the debt ratio,avoid financing risk and keep the stable financial position. References:

[1]Robert W·Kolb.Financial Markets[M]. Oxford: Blackwell Publishers Ltd,1996. [2]Asset purchase agreement[EB/OL].[2009-03-29].www-07.ibm.com/lenovoinfo/ap/lenovo/announcement.html(Accessed: 2009,March 29).

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[3]Business Finance.Equity investments[EB/OL].[2009-04-05].http://www.businessfinance.com/equity-investments.htm.

[4]Lenovo annual reports 05-08[EB/OL].[2009-04-13].www.pc.ibm.com/ww/lenovo/annual-interim_report.html.