Local state-owned assets of RMB10 trl aroused to securitize

Key policies including top design of Guidelines on Deepening State-owned Enterprises Reform have been issued one after another since September to open a new wave of SOEs reform. Meanwhile, local SOEs reforms have been comprehensively accelerated, and various provinces such as Jiangxi, Hebei, Guangdong and etc. recently issued detailed schemes to speed up the implementations. Li Jin, vice president of China Enterprise Reform and Development Society, indicated that supply side reform will speed up the SOEs reform, which will focus on restructuring, clearing-out and innovation for a series of SOEs. Under the endogenous drive of assets vitalized by local governments and external enhance from supply side reform, the next step is to reinforce the implementation strength of “three principles on leadership” in 2016 for local SOEs, and the mixed ownership reform and overall listing will also see major measures.
 
SOEs reform to break through on three aspects

In recent period, reform on local state-owned assets and enterprises focusing on merger & restructuring, assets securitization and mixed ownership reform is comprehensively accelerated.
 
Advanced forum on deepening SOEs reform was held in Jiangxi Copper Corporation on Nov. 22. It is learnt that Implementation Scheme for State-owned Assets and Enterprises Reform of Jiangxi Province will be issued soon. Jiangxi will positively attract various types of capital, including private equity funds, to participate in SOEs’ restructuring or newly-established mixed ownership enterprises; it will also speed up the strength to promote the listing of qualified commercial SOEs or core assets, create a series of powerful listed companies, and further improve securitization of state-owned assets in Jiangxi.
 
Hebei Province recently issued Implementation Guidelines on Deepening Local State-owned Enterprises Reform, clearly proposing the ways and goals for listing, restructuring, mixed ownership reform and preferred stocks. The Implementation Guidelines also proposes that domestic and overseas multi-layer capital market should be taken full advantages to create public companies, and greatly push the listing of SOEs. System reform, restructuring and listing of alternative companies related to tourism, logistics, water utilities, securities and so on should be actively promoted, companies listing in overseas market should be encouraged to get back to A-share market, and main business assets of listed companies related steel and coal should also be enhanced for overall listing. Operations on stock equities of listed companies should be reinforced, and private capital in the society should be encouraged to participate in issuance of additional shares by state-holding listed companies. Capital market for off-market transactions, including the “New Third Board”, should be efficiently used to push financing and reasonable flow of stock equities. By 2020, companies newly listed in various types of capital market should exceed 20, with large enterprises and groups respectively holding one or two listed companies; assets securitization ratio of the whole province should exceed 35 percent.
 
A promotion meeting on deepening state-owned assets and enterprises reform of Guangdong Province was held in Guangzhou City on Nov. 16. Zhu Xiaodan, governor of Guangdong Province, indicated that we should insist on adjusting, restructuring and optimizing the deployment of state-owned capital, enhance transformation development based on changes in the drives, improve the efficiency and quality for operation of state-owned capital, guide the economic development of mixed ownership based on actual conditions. We should also promote the activities one by one, if the conditions are mature to interconnect various types of capital, not requiring fixed targets, or setting timetable.
 
Guangdong Province proposed to optimize financing mechanism for enterprises and adopt listing to urge SOEs to improve corporate governance. In terms of ratio of asset securitization, State-owned Assets Supervision and Administration Commission (SASAC) of Guangdong Province has set the goals of capital operation for provincial enterprises in the next three to five years: by 2017, realize securitization of approximately 1 trillion yuan assets, with a securitization ratio of 60 percent , excluding expressway and railway assets, which have prominent public utility feature; by 2020, to reach 70 percent of securitization ratio. According to the plan of SASAC of Guangdong Province, the number of listed companies is expected to increase by seven to eight from 2014; and by 2020, the number is expected to increase by 12 to 14 from 2014; each provincial enterprise should strive to achieve the goal of holding at least one listed company.
 
“Currently, assets utilization efficiency of many state owned enterprises, including local state owned enterprises is rather low; once activated, such assets may contribute to the form of new supply. It to a large extent depends on a very important factor, namely SOEs reform,” said an expert in SOEs reform field “in respect of pushing forward SOEs reform, substantially all local governments hold a positive attitude, and some provinces have even formulated schemes for SOEs reform. In particular, Hei Longjiang Province is likely to issue reform scheme in the reminder of the year. As reform schemes are published, local SOEs reform will be further accelerated in the coming year. Several matters should be made clear in promoting SOEs reform: first, the formation of assets market; second, laws should be made to regulate the trading procedures of state owned assets and clearly define the boundaries of “losses of state owned assets”; third, legal guarantee should be in place for trial and error mechanism”.
 
10 trillion yuan state owned assets well positioned for securitization

China Merchants Securities believed that after top-level designing scheme of SOEs reform has been introduced by the central government, local governments have launched more detailed scheme in succession. It is expected that the pace of reform is likely to be further quickened, and the sub-sector of local SOEs reform again will see excess earnings. Local governments will vigorously promote reform and listing for local SOEs through major channels like M&A and listing. By 2013, assets of local SOEs amounted to 55.5 trillion yuan, but the overall securitization ratio is lower than 30 percent. In the coming years, approximately 10 trillion yuan local SOEs assets will be securitized, which will bring huge investment opportunities. In terms of Geographical coverage, Shanghai City, Guangzhou City, Shenzhen City, Anhui Province, Zhejiang Province and Jiangxi Province are hot spots.
 
Essence Securities pointed out that Shanghai, which is the first place to have issued 20 opinions on SOEs reform, and Guangdong Province and Jiangsu Province, which also have announced implementing rules on SOEs reform scheme, are three regions worth attention at present. Their goals of securitization ratio and candidates for overall listing or establishing state-owned capital investment companies will ignite the passion of investors in the capital market. Investors are recommended to focus on local SOEs with the identity of “single listing platform”, namely the only enterprise in a city, district or county act as the platform of state assets listing, because such enterprises are more likely to be chosen for capital operation.