Mas­sive fund to help re­form giant SOEs

350 bil­lion yuan to be used to stream­line State com­pa­nies us­ing sup­ply-side prin­ci­ples

China Daily (USA) - - FRONT PAGE - By LYUCHANG in Bei­jing lvchang@chi­nadaily.com.cn

Ma­jor Chi­nese State-owned en­ter­prises have launched the na­tion’s largest pri­vate eq­uity fund, worth 350 bil­lion yuan ($52.5 bil­lion), to fi­nance SOE re­struc­tur­ing as part of China’s ef­forts to ad­vance supplyside re­form.

The money will be used for such mea­sures as merg­ers and ac­qui­si­tions, in­dus­trial up­grades and in­no­va­tion, of­fi­cials said. A pri­vate eq­uity fund, in gen­eral, is a type of ve­hi­cle in­volv­ing rules for cap­i­tal not pub­licly noted on a stock ex­change.

The China Struc­tural Re­form Fund was ini­ti­ated by China Ch eng tong Hold­ings Group Ltd, a State-owned as­set-op­er­at­ing com­pany that has been in­volved in re­or­ga­ni­za­tion of SOEs. The fund will be man­aged by the State-owned As­sets Su­per­vi­sion and Ad­min­is­tra­tion Com­mis­sion.

Ini­tial cap­i­tal of 131 bil­lion yuan was raised by 10 Sta­te­owned com­pa­nies, in­clud­ing China Mo­bile Ltd, China Rail­way Rolling Stock Corp, and China Petroleum & Chem­i­cal Corp. China Cheng­tong is tak­ing the lead.

Xiao Yaqing, head of SASAC, said the fund will fi­nance sup­ply-side struc­tural re­forms to help pave a sus­tain­able growth path by means of SOE up­grades and in­dus­trial con­sol­i­da­tion.

“There’re some heavy in­dus­try sec­tors that have too much ca­pac­ity, and there are some oth­ers (with ca­pac­ity) in short sup­ply. That’s be­cause sales of lower-end prod­ucts re­main slug­gish, while we are not able to meet the de­mand of high­end goods,” he said, adding that the fund will help move state cap­i­tal up the value chain and ex­pand the sup­ply of high-end prod­ucts.

China is re­vamp­ing its mas­sive State sec­tor with the fo­cus on merg­ers and ac­qui­si­tions and over­ca­pac­ity re­duc­tion in some debt-rid­den in­dus­tries such as steel, ce­ment and coal.

The fund will help ad­dress those prob­lems, and about 80 per­cent of the cap­i­tal will be used in the re­struc­tur­ing of large-scale na­tional com­pa­nies, fol­low­ing mar­ket mech­a­nisms, said Zhu Bixin, pres­i­dent of China Cheng­tong.

“We have a dou­ble-ob­jec­tive mis­sion. One is to help serve sup­ply-side re­form, and the other is to se­cure the prof­its of our share­hold­ers, so that’s the chal­lenge we are fac­ing,” said Zhu, also chair­man of the China Struc­tural Re­form Fund.

Zeng Gang, bank­ing re­search direc­tor at the In­sti­tute of Fi­nance and Bank­ing of the Chi­nese Academy of So­cial Sci­ences, said the fund will lower fi­nanc­ing costs and op­ti­mize the fi­nanc­ing struc­ture in the State sec­tor, com­pared with us­ing bank loans.

“SOE re­form is a very com­pli­cated process, re­quir­ing higher abil­ity to man­age the po­ten­tial risks, and the State PE (pri­vate eq­uity) fund is strong in long-term as­set­man­age­ment and helps re­duce SOEs’ debt ra­tio,” he said.

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