Evaluation Methods | According to the survey, export credit agencies that mainly take policy finance as the fulcrum in this paper should consider not only the financial benefits of overseas investment projects, but also the macroeconomic and social benefits of the projects.
I. Major problems with the current assessment model
1. Deficiencies in evaluation principles and assessment methods
From the perspective of basic methods and models, the evaluation of policy-based financial overseas investment projects adopts the traditional evaluation model, that is, the evaluation focuses on the sponsor's own operation, financial situation, and repayment ability, while the understanding and control of the specific project invested is in a secondary position.
If the investment project fails, the loan principal and interest can still be repaid by the sponsor, and the financial institution will not be directly affected. From the perspective of the functional positioning of policy-based finance, the principles and analysis methods of the traditional evaluation model cannot adapt to and meet the needs of policy-based financial overseas investment projects.
(1) The traditional evaluation model pays too much attention to the financial indicators of investors and does not pay enough attention to the project itself.
First of all, the fundamental difference between policy finance and commercial finance is that it is not for profit, but to implement the government's industrial policy. However, the price of loans and guarantees for overseas investment projects supported by policy-based finance is more than 30% lower than that of commercial business, and if it is introduced to the market through commercial behavior, it will lead to a waste of resources and cannot play the role of policy-based finance.
Second, focusing solvency on the analysis of financial statements has many shortcomings: for example, financial statements are static, only reflecting the past and present of the enterprise, and cannot reflect the future; For example, due to the role of financial leverage or the need for market expansion, the amount of asset-liability ratio and the positive or negative cash flow do not necessarily indicate the strength of long-term solvency.
(2) The traditional evaluation method is to consider the project from the micro perspective and ignore other aspects.
First of all, from the perspective of the project, it should have satisfactory profitability and sufficient cash flow to ensure the timely repayment of principal and interest and achieve the objective effect of maximizing the economic and social benefits of overseas investment.
Secondly, from the perspective of the sponsor, all the financial benefits brought to the sponsor due to the construction and operation of the project should be examined on the basis of evaluating the financial benefits of the project itself.
Third, the macro benefits of the project should be evaluated from the perspective of the overall interests of society and the country. Such projects should be evaluated mainly from the perspective of macro-opportunity cost in order to achieve the role and effect of policy-based financial support.
(3) The traditional evaluation mode is suitable for domestic construction project evaluation, but not conducive to overseas investment project evaluation.
The traditional appraisal mode is suitable for domestic construction project evaluation, but it cannot solve the problems of foreign exchange control, tax impact, and foreign-related laws that are closely related to international operations, which are the main risks of international business projects.
According to statistics, at present, in China's overseas investment, profitable projects account for about 1/3, in 2/3 of unprofitable projects, due to insufficient grasp of local laws, policies and international practices, resulting in project termination, suspension and loss accounted for more than 38%, due to tax changes and exchange rate fluctuations caused by losses accounted for 20%. Therefore, the evaluation of overseas investment projects must pay attention to the risk assessment related to international operations.
2. Deficiencies in assessment procedures and indicators
(1) Insufficient attention is paid to the estimation of the liquidation value.
The business strategy of some projects indicates the transfer after a certain period of operation but does not analyze and measure the specific transfer method (such as acquisition by the local government) and the price terms of the transfer.
(2) There is no basis for the calculation of NPV and the selection of conversion rate.
Net present value estimation is considered to be one of the effective project evaluation indicators. At present, there is not enough attention to the measurement of NPV and the selection of internal conversion rate, and some projects do not even have NPV measurement.
First, there is a lack of criteria for selecting conversion rates, and evaluators generally copy the conversion rates in the sponsor's evaluation report. However, the sponsor calculates the cost of capital from a purely commercial perspective and selects the conversion rate from its own resource conditions, which is completely different from the role of policy finance; In order to unilaterally pursue investment expansion, some promoters will even artificially exaggerate or reduce the conversion rate.
Second, the conversion rate does not take into account the average market returns and risk premiums in the country where the project is located. First of all, foreign operations and domestic operations, the market correlation coefficient must be reduced, or even negative.
According to the CAPM model, the requirements for project yield should also be reduced accordingly, and the conversion rate should be lowered. Secondly, for regions and countries with a high degree of marketization, such as Hong Kong, Japan, and Germany, different project conversion rate standards should be used compared with countries such as Mexico and Thailand.
(3) The systematization and quantification of risk assessment need to be improved.
At present, in the evaluation of many overseas investment projects, there is no quantitative analysis of factors such as exchange rates, taxes, and foreign exchange controls of the countries where the investment is located, which have a greater impact on overseas investment.
From an operational point of view, the quantitative analysis of the above indicators is feasible and necessary, because these factors exceed a certain range of change and play a decisive role in the feasibility of the project.
Second, the evaluation concept and method optimization
1. From the perspective of the project
Overseas investment projects only have investment value if they meet the ability to apply for and repay loans with their own cash flow and assets.
Therefore, overseas investment projects should and must be consistent with the basic conditions for project financing. For projects whose financial indicators cannot meet the investment value, the economic responsibility and division of labor between the sponsor and the policy-oriented finance can be clarified through the evaluation method of project financing, and then the interest subsidies for the project company and the sponsor can be clarified, supplemented by the evaluation and evaluation from the perspective of the sponsor, macro benefit and diplomacy, so as to effectively screen the overseas investment projects supported by the policy finance.
2. From the perspective of policy finance
It should shoulder the responsibility of evaluating and screening overseas investment projects and improving the overall efficiency of overseas investment.
After the implementation of project financing, financial institutions are required to participate in the project from the beginning of the project, closely track and repeatedly demonstrate, evaluate the economic strength and operating ability of the sponsor and operator, and often innovate the specific financing structure.
Objectively ensure that policy-based finance can improve the quality and efficiency of overseas investment projects from the project evaluation stage.
3. From the perspective of the initiator
First, project financing overcomes the situation of "on-balance sheet financing", so that the accounting statements will not have an excessive debt ratio due to overseas investment; At the same time, enterprises whose domestic operations are temporarily sluggish due to industry cycles or market reasons will no longer be "beaten to death" by accounting statements when they apply for overseas investment loans when they encounter high-quality projects abroad.
Second, it can obtain financing that exceeds its own financial status, and the higher liabilities of the project can enjoy the interest tax shield.
Third, the all-round intervention of policy financial institutions can act as project consultants, and the allocation of risks prevents the sponsor from going bankrupt due to the failure of the project.
In summary, it can be concluded that in theory, overseas investment projects meet the applicable conditions for project financing, and project financing methods are conducive to improving the efficiency of China's overseas investment projects and promoting the development of China's overseas investment as a whole.
Third, the optimization of the evaluation mode
1. Effectively divide risks
As mentioned above, under the traditional valuation model, the promoter must be responsible for all risks of the outbound investment project. Although policy financial institutions do not aim to make profits, their ultimate goal is to recover the principal and interest of loans or release guarantee obligations.
After the introduction of the project financing concept, policy financial institutions share the risks of overseas investment projects and pay for the systemic risks involved. For overseas investment projects, the initiator should be responsible for the commercial risks of the project and its own credit risks, and the political risks and unforeseeable risks that exceed the forecast should be borne by policy finance in addition to insurance for overseas investment insurance.
2. Selectively apply different evaluation modes
Generally speaking, outbound investment can only be subject to conditional evaluation based on project financing concepts and methods.
That is, when evaluating overseas investment projects, policy-based finance should choose a specific evaluation mode according to the specific situation:
First, the evaluation based on the project financing concept and method should be completely applied;
The second is to conditionally evaluate based on the concept and method of project financing, that is, for projects that do not have "concession operation" and "government guarantee", the recourse and risk allocation of the sponsor are adjusted according to the project while implementing project financing; For resources and high-tech introduction projects whose cash flow is insufficient to cover the principal and interest of the loan, while conducting micro-financial assessment in strict accordance with the project financing method, the macro benefit and micro benefit are compared and analyzed, the quantitative assessment and responsibility of systemic risk are clarified, and the financial feasibility assessment is carried out on the basis of adding macro benefits and eliminating systemic risk losses;
Third, some of the small scale and operation are not standardized enough to still use the traditional evaluation model.
3. Continuously improve evaluation indicators
After the introduction of the concept and method of project financing, it is necessary to comprehensively analyze and evaluate the overall benefit of the project around the project start-up and adjust the relevant indicators to measure the project cash flow, mainly including the following indicators.
(1) Policy-based deficit compensation.
On the basis of adopting the project financing model, for energy and scarce resources overseas investment projects, if the project itself cannot bear its own profits and losses due to the needs of the national economic strategy, the assessment, management and risk division are still carried out in the form of project financing; For projects with unsatisfactory short-term or partial cash flow, the loan term can be extended accordingly, or the repayment ratio and term of the project funds and the opportunity cost income of the promoter can be divided.
For national strategic projects and energy resources projects, the policy-related deficits are made up by policy-oriented financial institutions, and then on the basis of compensation, the project financing method is used to conduct financial assessment of the project.
(2) Project life cycle prediction.
For a project that is not ready for mid-transfer, the life of the project affects cash flow, although its impact on cash flow gradually decreases to negligibility as the length of life increases.
For project financing in the full sense, in the context of "concession operation", the project operation period can be regarded as the life period; For outbound investment projects at this stage, the project company and the initiator are not in a position to determine the life span, as political events may force the liquidation of some projects to be earlier than planned.
Therefore, it is necessary to set an appropriate life period for the project and make a risk prediction for the early end of life.
(3) Valuation of liquidation value (after-tax residual value).
Compared with domestic investment, the after-tax residual value of overseas investment projects has a much greater impact on the cash flow of the project, because the project life cycle is difficult to control and expect; The residual value is obviously affected by local technology, social environment, and financial market. There are 3 ways to estimate residual values:
First, when the residual value is uncertain, it is necessary to consider the various possible outcomes of the residual value, and on this basis, the net present value of the project is reassessed, and the break-even point of the residual value is estimated if necessary.
Second, for listed companies, the transfer value can be calculated according to the dividend discount model, which is calculated by the formula:
V0=D1/(1+K)+D2/(1+K)2+...+DH/(1+K)H+PH/(1+K)H(where V0 is known, D1... DH is derived from the profit and loss forecast statement, and K can be calculated based on the average market yield of the country in which the investment is made).
Third, the residual value of real estate, equipment, intangible assets and other residual assets should be predicted according to the specific conditions of the market and technology. Real estate prices are affected by local real estate market, geographical location, government economic development policies and other factors, while equipment and intangible assets are subject to technological changes in the industry.
(4) Opportunity cost calculation.
The opportunity costs involved in overseas investment projects include the following: First, the exportation brought by the initiator due to the investment project. Including the export of raw materials during the project construction equipment and production period because the proceeds go to the sponsor, if the project is used as the assessment object, it should not be included in the project cash flow.
The second is the operating cost savings brought by the project to the sponsor. It mainly refers to the promoter's use of the sales network of the investment project, regional bilateral tax exemptions, breaking monopoly resistance and other conditions to bring cost savings. The third is technology transfer and R&D income.
Promoters acquire or invest in the construction of R&D centers, use advanced local technology for new product development, or establish local R&D institutions to avoid domestic taxes remitted from investment proceeds. These gains and expenses should be included in the income and expenditure of the sponsor or project according to the attribution.
In summary, the evaluation of overseas investment projects of policy financial institutions should be continuously explored and optimized on the basis of introducing the concepts and methods of project financing to improve the reliability of the evaluation.
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