As China’s state-owned enterprises (SOEs) reform enters its window period, listed companies are taking intensive measures in operating capital.
On July 4, China Shenhua Energy Company Limited (601088.SH) and GD Power Development Co., Ltd. (600795.SH) announced their stocks will suspend trading for one more month as the counterparties of major asset reorganization are large SOEs in the energy industry and the underlying assets are energy assets. This is only an epitome of the recent new moves taken by multiple central and local SOEs.
Half of the year 2017 has passed. The SOEs reform has entered a window period. The most urgent one is that mixed-ownership reform as it is now required to submit plans for pilot reform. Meanwhile, reorganization in SOEs is also accelerating. Particularly, reorganization in the fields of thermal power, heavy equipment manufacturing is active. In addition, the positioning and operation idea of pilot state-owned investment operation companies become increasingly clear.
Multiple mixed-ownership reform plans expected to be approved and implemented
The National Development and Reform Commission (NDRC) required that the pilot mixed-ownership reform should make substantial progress in the field of electricity, oil, natural gas, railways, civil aviation, telecommunications and military. Companies in these fields should submit their reform plans in May and June and implement plans in the fourth quarter.
The deadline for submitting reform plans has come. Li Jin, chief researcher from China Enterprise Research Institute, said that some of the pilot reform plans have been submitted in the second quarter, and are expected to be approved and implemented in the third quarter.
Among the first two batches of 19 enterprises to carry out pilot reforms, 6 central SOEs, China State Shipbuilding Corporation (CSSC), China Unicom, China Eastern Airlines, China Southern Power Grid and Harbin Electric Corporation, have been confirmed of their plans. In addition, the Shanghai Securities News (SSN) learnt that other central SOEs, including Air China Group, COFCO Corporation, China South Industries Group Corporation (CSGC), China North Industries Group Corporation (CNIGC), China Shipbuilding Industry Corporation (CSIC), Power Construction Corporation of China, are actively preparing mixed-ownership reform plans.
Actually, the mixed-ownership reform experienced multiple landmark events in the first half of this year. Among central SOEs, China Eastern Airlines on June 19 announced selling 55 percent shares in China Eastern Air Logistics Co., Ltd. to Legend Holdings Corporation, Deppon Logistics Co., Ltd., Greenland Group and GLP and some of the company’s core employees. This is the first pilot mixed-ownership reform in the civil aviation industry. Earlier on May 31, China Baowu Steel Group Corporation launched the mixed-ownership reform in its subsidiary Shanghai Steel Trading Centre Co., Ltd by introducing investors and employee stock ownership plan. Its stake in the subsidiary declined to 72 percent. In April, COFCO Corporation announced a plan to launch the mixed-ownership reform in its subsidiary COFCO Capital, a specialized in the financial sector. On April 22, Air China Limited (601111.SH) announced that the NDRC ha approved its controlling shareholder Air China Group to launch mixed-ownership reform in the latter’s air freight & logistics assets (the listed company included).
Yunnan Baiyao Group Co., Ltd. (000538.SZ) is a typical case in local SOEs. Yunnan Baiyao Group announced on June 7 that its controlling shareholder Baiyao Holdings Group will introduce Yuwell-Jiangsu Yuyue Medical Equipment & Supply Co., Ltd. via private placement. After the deal, the State-owned Assets Supervision and Administration Commission of Yunnan Provincial Government, New Hua Du Supercenter Co., Ltd. (002264.SZ) and Yuwell-Jiangsu Yuyue Medical Equipment & Supply Co., Ltd. will hold 45 percent, 45 percent and 10 percent equities of Yunnan Baiyao Group, respectively.
The meeting of the Central Leading Group for Comprehensively Deepening Reforms held at the end of June reviewed and passed the implementation plan for corporate system restructuring in central SOEs. The plan required basically completing the corporate system restructuring in central SOEs before the end of this year. Data from the State-owned Assets Supervision and Administration Commission (SASAC) shows that as of the end of 2016, 92 percent of all the subsidiaries of central SOEs under the SASAC’s supervision have completed restructuring of corporate system, while 90 percent of enterprises under provincial SASAC’s supervision have completed restructuring.
Listed companies become major platforms for central SOEs’ consolidation
As for central SOEs’ reorganization, the number of central SOEs has dropped to 101 after China Hi-Tech Group Corporation incorporated into China National Machinery Industry Corporation. The SSN reporter learnt that the number of central SOEs will be reduced to below 100 this year. For the next stage, Li Jin expected that there will be more reorganization between central and local SOEs, mainly led by projects. And it will become a trend that small central SOEs to be incorporated into large ones.
The SASAC announced in early June that in the next step it will speed up the pace of restructuring and reorganization, continue to promote the reorganization of the central SOE group, steadily promote reorganization in the fields of coal, heavy equipment manufacturing and steel and explore overseas asset integration. Central SOEs will take advantage of leading enterprises and listed companies as a platform to strengthen the integration of resources in enterprises engaged in the same business. Central SOEs will concentrate resources in advantageous enterprises and business owners via asset reorganization, equity cooperation, asset swap, free transfer, strategic alliances and joint development.
At present, reorganization has been in full swing in central SOEs in the fields of coal, heavy equipment manufacturing and steel. The consolidation between China Shenhua Energy Company Limited and GD Power Development and between China Hi-Tech Group Corporation and China National Machinery Industry Corporation provide cases in the first two areas. There is still no move in the steel industry. Li Jin believed that Angang Steel Company Limited (00898.SZ) and Benxi Steel Group, and Beijing Shougang Co., Ltd. (000959.SZ) and Hesteel Company Limited (000709.SZ) are also expected to consolidate, but it still needs preparations. In addition, China Nuclear E&C Group (CNEC) and China National Nuclear Corporation, engaged in the upper and downstream of the nuclear industry, are very likely to consolidate.
The reporter also noted that listed platforms of central SOEs are taking increasingly intensive actions capital operation. Among them, China Merchants Group will list China Merchants Road Co., Ltd. after consolidating Huabei Expressway Co., Ltd. (000916.SZ). Meanwhile, China Merchants Energy Shipping Co., Ltd. (601872.SH) is planning to issue shares to buy assets. The underlying assets are some foreign cargo transport enterprises owned by Sinotrans & CSC Holdings Co. Ltd. both at home and abroad. In addition, China Merchants Group is promoting integration of ports in Liaoning Province. Port is a traditional business of China Merchants Group. So far, China Merchants Group has announced plans or progresses for consolidation of its highway, shipping and port business.
Listed companies have played an important role in the reorganization among central SOEs and the international consolidation of central SOEs. Meanwhile, resources integration in pilot state-owned capital investment and operation companies will also rely on listing companies. For example, SDIC Essence (Holdings) Co., Ltd. (600061.SH) announced on June 29 that it was entrusted by its controlling shareholder State Development & Investment Corporation (SDIC) to manage 11.67 percent stake in China Bohai Bank held by the latter. On July 4, SDIC Essence announced that it will establish comprehensive strategic partnership with China Bohai Bank. In recent years, SDIC has continuously injected high-quality financial assets into SDIC Essence via asset reorganization and acquisition, aiming to create SDIC Essence into a comprehensive financial holding platform that owns business licenses in trust, capital management, funds and insurance with Essence Securities as core.
Translated by Coral Zhong
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