By: Zhang Xiaomin, Yang Xiaoyu and Yang Wei
Recent government policy adjusting the number of central state-owned enterprises is likely to lead to numerous new opportunities for law firms hoping to participate in large scale restructuring and capital markets transactions. The Stated-Owned Assets Supervision and Administration Commission of the State Council (SASAC) recently stated that by the end of 2010, the number of central state-owned enterprises must be reduced to 80-100, of which 30-50 should be large internationally competitive corporations, and that by 2015, there should be no more than 1000 regional stated-owned enterprises. Industry insiders expect the recent policy change to lead to widespread potential for large scale securitization and IPO projects.
It is unlikely, however, that SOE enterprises will list without first attempting to increase their competitiveness through restructuring either through vertical integration or through the bundling of small and uncompetitive enterprises into one larger “China Investment No.2,” such as the Guoxin Corporation.
SOE’s are also unlikely to rush into public offerings. Despite the recent policy change, by September 2010, the number of central state-owned enterprises had only reduced by six, 23 less than the yearly quota. It is likely, therefore, that the end of 2010 will bear witness to a wave of SOE restructurings.
Even the most succesfull regional efforts were unable to meet government set quotas. Although the Greater Shanghai area was most effective at implementing out the government’s new SOE policy, statistics show that the securitization rate of state-owned assets in Shanghai is still far below the rate fixed by the policy change, only 25.4%. The municipal government is expected to follow the closing of the World Expo with renewed effort in the restructuring of state-owned assets, and it is estimated that over RMB 20 billion state-owned assets will enter the stock market in 2010.
In China’s north-west Xinjiang province, the listing of the affiliated companies of Xinjiang Production & Construction Corps (XPCC) has drawn widespread attention. Shang Fulin, president of China Securities Regulatory Commission (CSRC), recently stated that the CSRC will provide support to XPCC in corporate financing matters, acquisitions, restructuring and futures market building. The CSRC will also support the listed subsidiaries of the XPCC in operation and development. By the end of 2009, the Xinjiang autonomous region had 36 listed companies, among which XPCC companies made up approximately 50%. The remaining enterprises are primarily subsidiaries of SASAC. Currently, XPCC has 14 listed companies, 13 of which are A-share companies. With government backing, it is very likely that XPCC’s unlisted subsidiaries will remain good IPO prospects in the near future.