SOE Merger and Restructuring Deals Since Start of 2017 Exceed 1 Trillion Yuan

The latest data indicates that Beijing’s ongoing efforts to reform China’s state-owned enterprises via capital markets have led to a surge in the value of associated deals.

Data just released by Wind indicates that since the start of 2017 a total of 152 major SOE restructuring deals (including scuppered deals) have hit the Shanghai and Shenzhen bourses, involving a total transaction value of 1.00031 trillion yuan.

The biggest deals so far have included the establishment of a joint-venture by GD Power Development and China Shenhua Energy via asset transfers by both parties, and Jinan Diesel Engine’s acquisition of a 100% equity stake in CNPC Capital.

Data form the Shanghai Stock Exchange indicate that in 2017 SOE’s used a variety of means to drive integration of enterprise assets, including mixed-ownership reforms, debt-equity trials, asset securitisation, and specialised restructuring.

In 2017 Shanghai-listed SOE’s were involved in merger and restructuring deals worth over 540 billion yuan, with the major asset restructuring sum approaching 200 billion yuan.

Data from the Shenzhen Stock Exchange indicates that 2017 saw a total of 190 merger and restructuring deals, with a merger transaction amount of 658.077 billion yuan.

The primary objectives of restructuring have included horizontal integration, strategic diversification, asset adjustments and full listing.

74 of the deals were for the purpose of horizontal integration, accounting for nearly half of the total, while the integration of SOE resources in the same segments and sectors is expected to continue against a background of ongoing supply-side structural reforms.

Deals have mainly been concentrated in the electrical equipment, electrical component, industrial chemical, metal, health and real estate sectors.

Out of the 152 deals a total of 84 have already been completed, 25 have run ground, while the rest are still at the stage of pre-planning by boards.

2018 is expected to be another peak year for the merger and restructuring of Chinese state-owned enterprises.

In May Chongqing Trading Firm (重庆商社(集团)有限公司), the controlling shareholder of Chongqing Baohuo, officially launched its mixed-ownership reforms, while in Henan province efforts by Zhengzhou Coal Industry and Henan Investment Group to restructure assets in the power sector are expected to dominate SOE reforms in the region across the rest of the year.

On 14 May the Tianjin Property Rights Transaction Center announced that the Tianjin municipal State-owned Assets Supervision and Administration Committee (SASAC)  would launch concentrated restructuring of corporate groups in the city, focusing upon mixed-ownership of as many as 20 first-tier groups.

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