Listed firms ride M&A re­form

China Daily (Hong Kong) - - MARKETS - By LIU ZHIHUA li­uzhi­[email protected]­ Xin­hua con­trib­uted to this story.

The China Se­cu­ri­ties Reg­u­la­tory Com­mis­sion (CSRC) is work­ing to­ward quicker ap­provals of ap­pli­ca­tions for merg­ers and ac­qui­si­tions or M&As.

The CSRC has un­veiled a range of poli­cies loos­en­ing re­stric­tions on M&A ap­pli­ca­tions. It has also grad­u­ally eased con­trol over M&As that have im­pli­ca­tions for the cap­i­tal mar­ket.

In Oc­to­ber, it eased fund­ing re­stric­tions on M&A’s in­volv­ing listed com­pa­nies. It now al­lows them to use funds raised for ac­qui­si­tions to sup­ple­ment op­er­at­ing cap­i­tal or re­pay debts of them­selves or ac­qui­si­tion tar­gets.

The reg­u­la­tor also said it would im­prove su­per­vi­sion to sup­port share­hold­ers and strengthen their con­trol through in­vest­ment in share place­ments.

It has also in­tro­duced a fast-track pro­ce­dure to re­view small M&A deals that do not in­volve ma­jor as­set re­struc­tur­ing, which saves much time for such deals.

An­a­lysts said the new reg­u­la­tions will fa­cil­i­tate M&A in­volv­ing listed com­pa­nies, and will im­prove qual­ity of listed com­pa­nies, shore up the struc­tural up­grade of the econ­omy, and con­trib­ute to the healthy de­vel­op­ment of the real econ­omy.

“The au­thor­i­ties some­times tighten grip on mar­ket reg­u­la­tion, and some­times, as it is now, loosen re­stric­tions,” said Song Guo­liang, pro­fes­sor of fi­nance at the Univer­sity of In­ter­na­tional Busi­ness and Eco­nomics in Bei­jing.

“Such moves are all out of a ra­tio­nal re­sponse to the over­all eco­nomic si­t­u­a­tion, and will have pos­i­tive im­pact on in­creas­ing mar­ket vi­tal­ity.”

Now is a good time for ca­pa­ble com­pa­nies to go in for M&A ac­tiv­ity, as many wor­thy tar­gets that were not will­ing to be sold in the past, are now on the mar­ket at rea­son­able prices, Song said, who is also direc­tor of the fi­nan­cial prod­ucts and in­vest­ment re­search cen­ter at the UIBE.

Be­sides, when mar­ket re­sources are at a rel­a­tively low price, it is a good time for un­listed com­pa­nies to take over listed shell com­pa­nies and ini­ti­ate M&A on the A-share mar­ket, he said, adding the reg­u­la­tor’s eas­ing of poli­cies will fur­ther boost the in­flu­ence of mar­ket mech­a­nisms, and in­crease their ef­fi­ciency as well.

CSRC data showed M&A ac­tiv­i­ties on the cap­i­tal mar­ket have been bol­stered in re­cent months.

The do­mes­tic mar­ket had booked nearly 3,000 M&A deals in­volv­ing listed com­pa­nies in the first nine months of last year, up 69.5 per­cent year-on-year and ex­ceed­ing the to­tal amount of M&A deals last year, ac­cord­ing to the CSRC.

The trans­ac­tions were val­ued at nearly 1.8 tril­lion yuan ($262 bil­lion), up 46 per­cent year-on-year, and close to the full-year M&A trans­ac­tion value last year.

More­over, among all the M&A’s in the first three quar­ters, only 117 needed reg­u­la­tory ap­provals from the CSRC, which means the pro­por­tion of M&As that needed re­view and ap­proval from the reg­u­la­tor has dropped fur­ther to 4 per­cent from about 10 per­cent in 2017.

Ac­cord­ing to Wind Info, a fi­nan­cial in­for­ma­tion provider, the CSRC re­viewed 30 M&A ap­pli­ca­tions from Oct 1 to Nov 20 last year, among which 27 were per­mit­ted.

The CSRC had given the green light to 94 M&A ap­pli­ca­tions by Nov 20 last year, out of a to­tal of 107 ap­pli­ca­tions the reg­u­la­tor re­viewed. The ap­proval rate stood at nearly 88 per­cent, ac­cord­ing to Wind Info.

Fast M&A ap­proval from the CSRC is also in line with China’s na­tional goals such as sup­ply-side re­form, over­ca­pac­ity cuts, and up­grade of eco­nomic struc­ture, Song said.

The im­ple­men­ta­tion of such na­tional strate­gies re­lies on re­al­lo­ca­tion of mar­ket re­sources, for which M&A is a good means, he said.

Through M&A, ca­pa­ble com­pa­nies not only ac­cess fi­nance, but more im­por­tantly, are able to re­or­ga­nize as­sets and re­sources to achieve high growth, and even­tu­ally be­come in­ter­na­tional play­ers, he said.

Chi­nese com­pa­nies that are in­dus­try lead­ers have an in­creas­ing need to al­lo­cate re­sources and as­sets on a global level, and quick M&A ap­provals, es­pe­cially re­moval of un­nec­es­sary ad­min­is­tra­tive pro­ce­dures, will help safe­guard busi­ness se­crets, and fa­cil­i­tate the im­ple­men­ta­tion of in­ter­na­tional strate­gies, Song said.

Be­sides, the de­vel­op­ment his­tory of big com­pa­nies both home and abroad shows that big com­pa­nies’ M&As in­volv­ing smaller ones of­ten in­ject new growth mo­men­tum into merged en­ti­ties, and lifts the whole econ­omy’s in­no­va­tion, be­cause in­no­va­tion of­ten hap­pens in smallto-medium busi­nesses.


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