china-lbo-model

Purpose

Build institutional-quality LBO models for transactions in the China market, accounting for:

• Chinese debt market structures (bank loans, 公司债, 中期票据)
• CAS accounting standards
• A-share trading restrictions and considerations
• China-specific tax treatment

Key Differences from US LBO Models

Parameter	US LBO	China LBO
Debt market	Public bonds, institutional loans	Bank syndicated loans, 公司债, ABS
Typical leverage	5-7x EBITDA	3-5x EBITDA (bank-driven)
High-yield market	Developed	Limited (mostly onshore/offshore 高收益债)
Covenant package	Bond covenants, bank covenants	Primarily bank-led covenants
Management roll	Standard	Often 管理层持股 + earn-out
Tax rate	21% federal	25% standard (高新技术企业 15%)
Currency	USD	CNY (人民币)
Accounting	US GAAP / IFRS	CAS (企业会计准则)

Data Sources

Primary: iFind MCP (Tier-1 付费) / AkShare MCP (Tier-2 免费备选)

get_financials(ticker, "income", "annual")   → 利润表 (EBIT, Net Income)
get_financials(ticker, "balance", "annual")  → 资产负债表 (Debt, Cash)
get_financials(ticker, "cashflow", "annual") → 现金流量表 (FCF, CapEx)
get_quote(ticker)                            → Current valuation
get_historical_data(ticker)                  → Trading history
get_stock_info(ticker)                       → Company profile

Secondary Sources

• 巨潮资讯 — public filings for historicals
• 公司公告 — debt agreements, covenant packages
• 银行间市场交易商协会 — bond issuance data
• Wind / 同花顺 — comparable transaction multiples

Workflow

Step 1: Company & Transaction Setup

Transaction Structure (China-specific):

• Buyer type: 战略投资者 (strategic) vs 财务投资者 (financial sponsor)
• ** Listed status**: A-share delisting process vs 借壳上市 (reverse merger)
• Deal structure: 股权收购 vs 资产收购 vs 吸收合并
• Lock-up: 限售期 considerations (typically 12-36 months)

Entry Valuation:

• Current market cap (流通市值 or 总市值)
• Control premium benchmark: 20-40% typical for China M&A (vs 20-30% US)
• Take-private premium for A-share delistings: 30-50%

Step 2: Sources & Uses

Sources:

• Senior debt (银行借款): 40-60% of total consideration
• Subordinated debt / 夹层融资: 5-15%
• Equity ( sponsor equity ): 30-50%
• Revolver (循环额度): 10-20% of EBITDA
• Seller note / 卖方分期付款: common in China

Uses:

• Purchase equity
• Refinance existing debt
• Transaction fees (typically higher in China: 2-4%)
• 印花税 (stamp tax): 0.05% on equity transfer
• 增值税 on asset deals: 6% (一般纳税人) or 3% (小规模纳税人)

China-specific cost items:

• 印花税 (Stamp tax): 0.05% of deal value for equity transfers
• 契税 (Deed tax): 3-5% for asset acquisitions
• 土地增值税 (Land appreciation tax): for real estate assets
• 中介费用 (Advisory fees): typically 1.5-3% for IB, legal, accounting

Step 3: Operating Model

Build 5-year projections following standard LBO methodology:

Revenue assumptions:

• Historical growth rate baseline
• Synergy adjustments (cost savings, revenue uplift)
• China-specific factors:
  • 产能利用率 (capacity utilization) trends
  • 新产能投放 (new capacity ramp)
  • 市场份额变化 (market share dynamics)

Margin assumptions:

• Gross margin: track 毛利率
• Operating margin: 营业利润率
• Note: Chinese industrial companies often have thinner margins than Western peers

Working capital:

• 应收账款 (AR) days — often elevated in China
• 存货 (Inventory) days — FIFO only (no LIFO under CAS)
• 应付账款 (AP) days
• Net working capital as % of revenue change

CapEx:

• 资本支出 intensity (Chinese industrials often capex-heavy)
• Maintenance vs growth CapEx split

Step 4: Debt Schedule

China-specific debt structures:

1. Senior secured bank loan (银行借款)

   • Typically 3-5 year tenor
   • SOFR/LPR + spread (1-3%)
   • Covenants: 资产负债率, 利息覆盖倍数, 流动比率
   • Amortization: typically 1-3% per year (bullet maturity)

2. Subordinated debt / 夹层融资

   • Mezzanine structures gaining market share
   • 10-15% coupon typical
   • Often includes equity kicker (认股权证)

3. High-yield bonds / 高收益债

   • Limited market, mostly offshore
   • 7-12% coupon range
   • 3-5 year maturity

4. Revolver (循环贷款)

   • Based on 应收账款 or 存货 collateral
   • LTV: 50-70% of eligible collateral

Interest calculation:

• Average debt balance method or daily balance
• LIBOR/SOFR replaced with LPR for onshore RMB loans
• Add credit spread based on company rating

Step 5: Returns Analysis

IRR calculation (same methodology as US LBO):

• Sponsor equity contributions
• Dividend recapitalizations
• Exit proceeds

MOIC calculation:

• Total cash returned / Total cash invested

Exit multiples:

• Comparable to china-comps analysis
• Typical EV/EBITDA exit: 6-12x for China industrials
• IPO exit: increasingly common (A-share IPO for delisted targets)

Sensitivity tables:

• Entry multiple vs exit multiple
• EBITDA growth vs leverage level
• IRR vs MOIC matrix

Step 6: Scenario Analysis

Bear case:

• Revenue growth below plan
• Margin compression
• Higher borrowing costs
• Covenant tightness

Base case:

• Plan assumptions achieved
• Standard amortization schedule
• Target exit in year 4-5

Bull case:

• Revenue synergies materialize
• Margin expansion through 规模效应
• Lower financing costs
• IPO exit at premium

China-Specific Considerations

A-Share Delisting / 私有化

• 全面要约收购 (General offer) required for >30% stake
• Minimum offer price: typically 6 months highest trading price
• Post-delisting: 3 years before re-listing (创业板/科创板: 2 years)
• 回购价格 must meet regulatory minimums

Regulatory Approvals

• 反垄断审查 (SAMR merger control)
• 经营者集中申报 for deals above thresholds
• 外资安全审查 (foreign investment review)
• 行业准入 (sector-specific approvals)

Tax Considerations

• 资本利得税: not separately levied on individuals
• Corporate: 25% (or 15% for 高新技术企业)
• Withholding tax on dividends to foreign investors: 10% ( treaty relief possible)
• 转让所得税 on asset transfers: 25% corporate or 20% individual

Working Capital Norms

• Chinese companies often have:
  • Higher AR days (less efficient collections)
  • Higher inventory days (especially manufacturing)
  • Higher AP days (supplier financing)
• Net WC often runs 5-15% of revenue for industrials

Debt Market Access

• Investment-grade: 3-5% borrowing cost
• High-yield: 8-15% (offshore bonds)
• Bank loans: LPR + 100-300 bps
• Shadow banking restrictions affect 信托融资 availability

Excel Model Structure

Sheet Architecture

1. Sources & Uses — deal structure
2. Operating Model — 5-year projections
3. Debt Schedule — all tranches with amortization
4. Returns Summary — IRR, MOIC, equity bridge
5. Sensitivity — entry/exit multiple sensitivity

Key Formulas

// EBITDA
=Gross Profit + D&A - S&M - G&A

// Unlevered FCF
=NOPAT + D&A - CapEx - ΔNWC

// Levered FCF
=Unlevered FCF - Interest - Mandatory Amortization - Dividends

// Debt at end of year
=Beginning Debt + New Draws - Mandatory Amort - Optional Prepayment

// Interest expense
=Average Debt × Interest Rate

// IRR
=IRR(Equity contributions, dividends, exit proceeds)

// MOIC
=Exit Equity Value / Total Equity Invested

Output Checklist

Before delivering:

• Sources & Uses balance (Total Sources = Total Uses)
• Debt schedule amortizes correctly
• Interest calculated on average or period-end debt (consistent)
• All hardcoded inputs sourced and commented
• IRR and MOIC calculations verified
• Sensitivity tables fully populated
• Scenario analysis included (Bear/Base/Bull)
• China-specific taxes/fees included in Uses
• CAS conventions documented
• File named: [Ticker]_LBO_Model_[Date].xlsx

Reference

This skill extends the base lbo-model skill. For Excel formatting standards, formula conventions, and section checkpoint methodology, refer to:

• lbo-model/SKILL.md — base LBO methodology
• xlsx-author/SKILL.md — Excel file creation standards
• audit-xls/SKILL.md — model validation and audit procedures

Data Source Mode Switch: Set env var IFIND_DATA_SOURCE_MODE to control data source preference.

• ifind-only (strict): Use iFind only, error if unavailable
• ifind-fallback (default): iFind preferred, fallback to AkShare
• akshare-only: Skip iFind, use AkShare only