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Shares of restructuring companies in market limelight

(China Daily)
Updated: 2009-08-11 07:57

More than 300 domestic listed companies have applied for mergers and acquisitions (M&As) so far, triggering a new round of investment heat on restructuring stocks in the second half of the year.

As their plans are under review by the country's securities regulator, investors expect more stocks are likely to "change faces" and consolidate business in the second half of the year, said cnstock.com, a website run by Shanghai Securities News, citing an insider.

Restructuring stocks were always apples in investors' eyes, as they usually perform much better than earlier in the domestic A-share market. Shunfa Hengye Co gained nearly 1,809 percent month-on-month after trading in its shares was resumed.

"It is like casting off one's old self and taking on a new self," said an analyst from Changjiang Securities who declined to be named, "some companies were almost dying and when good capital and good management was injected, they are alive again."

China Securities Regulatory Commission has permitted 253 listed companies to conduct M&As from the start of the year to mid-July, according to financial data provider Wind Info. The restructuring stocks fell largely in medium and small enterprises, and more than 60 percent of these companies have an enlarged capital less than 400 million shares.

But industry experts forecast more State-owned enterprises with abundant capital to join the fray, as the government encourages them to become bigger and stronger through consolidations. Those big State-owned enterprises are usually parent companies of the largest listed firms such as PetroChina, Sinopec, Chalco and China Mobile.

Li Rongrong, head of China's State-owned Assets Supervision and Administration Commission (SASAC), said the number of SOEs under the direct supervision of SASAC should be reduced to 80 to 100 by 2010. In the first half of the year, the total number has been cut from 142 to 136.

"Our goal has not changed, and although we have only one and a half years left, we will still do it," Li said in an online interview in June. The criteria for whether a company is to be restructured or not, is to see whether they are among the top three firms in that particular industry.

The draft rules for mergers and acquisitions in the steel sector will soon be released by the Ministry of Industry and Information Technology. It aims to force the industry to consolidate and offers more advantages for State-owned majors to acquire smaller rivals.

Related readings:  China's M&A challenge  Is M&A the right way for China?  China says welcomes inbound M&A by foreign firms

Late last year, Tangshan Iron and Steel Co, the listed unit of what was China's third-largest steel mill, agreed to merge with two smaller rivals into the country's biggest listed steelmaker, creating a second Chinese industry champion in the world's top five steel producers.

To fight against worldwide financial crisis and rev up its slowing economic growth, China rolled out a slew of stimulus packages for major industries, including auto, steel, textile, petrochemical and shipbuilding. The plans covered not only specific measures to counter crisis, but also longer term goals, leaving China, the third largest economy of the world, with a few globally competitive companies.

Meanwhile, companies are free of income tax when payment occurs during mergers and acquisitions, according to a notice issued by the Ministry of Finance and the State Administration of Taxation in May.