State-Owned Controlling Listed Companies M&A Shows New Features: "Core Business Focus" Becomes Important Driving Force

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Reprinted from: Securities Daily

Staff Reporter: Du Yumeng

Since the beginning of this year, mergers and acquisitions of state-controlled listed companies in the A-share market have continued to accelerate.

For example, China National Complete Import & Export Corporation completed the acquisition of 100% equity of Zhongji Jiangsu Clean Energy Co., Ltd.; Xiamen Port Development Co., Ltd. completed the acquisition of 70% equity of Xiamen Container Terminal Group Co., Ltd., held by Xiamen International Port Co., Ltd.; China Shenhua Energy Co., Ltd. (hereinafter referred to as “China Shenhua”) completed the purchase of shares in 12 core enterprises under its controlling shareholder, China Energy Investment Corporation.

According to Tonghuashun data, based on the first announcement date and excluding failed transactions, as of March 23 this year, there have been a total of 224 merger and acquisition events involving state-controlled listed companies (actual controllers are the State-owned Assets Supervision and Administration Commission of the State Council and local SASCs) in the A-share market, covering fields such as aviation, energy, electronics, and more. Among them, 43 are controlled by central enterprises. From the disclosed acquisition targets of several central enterprise-controlled listed companies, “focusing on main business” has become an important driving force.

For example, to enhance core competitiveness in main business and further promote domestic capacity optimization, in February this year, Guotou Zhonglu Fruit Juice Co., Ltd. proposed to acquire 70% equity of Luochuan Lingxian Apple Deep Processing Technology Development Co., Ltd. through a package of equity purchase and capital increase transactions. Another example is China Eastern Airlines Corporation Limited (“China Eastern”)’s subsidiary, Eastern Airlines Import & Export Co., Ltd., transferring its 49% stake in its associated company, Eastern Airlines Supply Chain, to Eastern Airlines Logistics Co., Ltd., to fully utilize and leverage its advantages in aircraft material supply chain transportation and management, thereby providing China Eastern with more efficient and high-quality aircraft material supply chain management and logistics services.

Practically speaking, currently, the mergers and reorganizations of central enterprises are shifting from past scale expansion to focus on main business or strategic concentration, which aligns highly with the policy orientation of “three集中” of state-owned capital.

To better play the backbone and pillar role of central enterprises in the national economy, Zhang Yuzhuo, Secretary of the Party Committee and Director of the State-owned Assets Supervision and Administration Commission of the State Council, further clarified during this year’s National Two Sessions that during the 14th Five-Year Plan period, efforts should be made to achieve new breakthroughs in promoting the “three集中” of state-owned capital. The goal is to change the situation where the layout of the state-owned economy is long in line, widely distributed, but lacking in high-end and with many low-end assets, by concentrating the assets of central enterprises into 20 key industries out of 97 major industries in the national economy, and ensuring that over 88% of their operating income is also concentrated in these industries.

Li Xiao, Deputy Director of the Capital Market Supervision and Reform Research Center at the Central University of Finance and Economics, told Securities Daily that the current orientation of central enterprise mergers and reorganizations has shifted from scale expansion to strategic focus. Specifically, from covering all fields to focusing on key future areas, strengthening control of the state-owned economy in these sectors. From traditional industry integration to new and old kinetic energy conversion, with the goal of restructuring shifting from cost reduction and efficiency improvement to technological breakthroughs and ecological construction. From administrative-led to market-led, encouraging central enterprises to integrate external innovation resources through market-oriented means (such as equity cooperation and joint R&D) to improve resource allocation efficiency.

Li Xiao predicts that, in terms of industry distribution, central enterprise restructuring will revolve around areas such as energy security (e.g., clean coal utilization, new power systems), high-end manufacturing (e.g., aerospace, semiconductor equipment), and digital economy (e.g., industrial internet, computing infrastructure). Cross-group and cross-region industrial chain integration is also expected. Additionally, strategic emerging industries and future industries will become hotspots for restructuring, such as acquiring or merging companies that possess key core technologies (e.g., chip materials, hydrogen energy storage and transportation), or establishing industrial funds to incubate cutting-edge technologies (e.g., brain-computer interfaces, controllable nuclear fusion).

It is worth noting that, with the registration of the consideration shares involved in China Shenhua’s restructuring completed at the Shanghai branch of China Securities Depository and Clearing Corporation Limited on March 16, this billion-yuan-level asset restructuring not only set a new record for the scale of share issuance for asset purchase in the A-share market but also benefited from the “simple review process” policy, providing a “sample” experience for subsequent restructuring and integration of central enterprise-controlled listed companies in the A-share market.

According to Zhu Changming, Partner at Sunshine Law Firm and Head of the State-Owned Enterprise Mixed Ownership Reform Center, this restructuring clearly conveys the regulatory guidance of “compliance equals efficiency.” That is, high-quality listed companies with long-term good disclosure, sound governance, and prominent main businesses will gain more efficient capital operation channels. This is expected to create a market incentive ecosystem of “compliance—efficiency—more compliance” for subsequent central enterprise reorganizations in the A-share market, guiding central enterprise-controlled listed companies to further focus on main businesses and improve governance, while also encouraging more central enterprise-controlled listed companies to actively utilize capital market tools, boosting M&A activity, and forming a virtuous cycle of “high-quality companies smooth access,” thereby promoting the optimization and restructuring of the layout of state-owned capital.

Zhu Changming predicts that during the 14th Five-Year Plan period, central enterprise mergers and reorganizations are expected to usher in a new cycle of strategic leadership and value creation, with the synergy effects and growth expectations from restructuring driving a revaluation of central enterprise value.