SOE Reform Promoted, Mergers and Acquisitions by listed Companies Accelerated
Source:China Securities News Release Date:2014-08-08 15:34:18

In 2013 M & A activities in A-share market were magnificent. Since the beginning of 2014, M & A activities related to listed companies have been more active. Some companies headed for the popular concept through mergers and acquisitions and were transformed into new field. In addition, the investment opportunities from state-owned enterprise reform made mergers and acquisitions continue to be the hotspot of capital market. Insiders analyze that, with joint action of policy deregulation, economic restructuring and state-owned enterprise reform, it is expected that the capital market will usher in a more rapid tide of mergers and acquisitions.

Mergers and acquisitions keep active

The report of Societe General Securities (601377, stock bar) shows that in 2013 the A-share listed companies were enthusiastic in M & A transactions, with 1296 times throughout the year, and a total amount of RMB 633 billion. Since 2014, mergers and acquisitions have been accelerating. As of the end of March, M & A transactions have been 500 times, equivalent to 38% of annual transactions in 2013; and amount of merger transaction was RMB 385.1 billion, equivalent to 61% of annual transactions in 2013. In the secondary market, since September 2013, the top ten companies with the largest increase in A-share are related with the merger.

Societe General Securities also said that so far from 2013, the number of listed companies involving mergers and acquisitions in the pharmaceutical industry ranked first among various sectors, with a total of 159 times, about 40% of which were related with medical device and treatment; the listed companies in electronic components, computer, communications and media sectors were also very active in merger. Within three months since early 2014, the number of mergers and acquisitions in these four sectors has reached about 50 percent of the total number in 2013.

According to the rough sorting by the reporter from China Securities News, most of the ox shares with large amount of increase since this year are still the shares of SME board and GEM, with "Internet" events as well as mergers and acquisitions and other favorable. Century Huatong (002602, stock bar) had an accumulative increase of 150.68% in the first quarter of this year, with 14 consecutive daily limit from resuming trading stock on January 22. The main reason is that Century Huatong carried out the cross-border acquisition of online games, which intended to purchase the 100% stock equity of T2 Entertainment together held by Wang Ji, Tang Qiqing and Ren Xianghui by issuing shares combined with cash payment; and the 100% stock equity of 7 Cool Network together held by Shao Heng, Cai Weiqing and Gods Interaction. Contrast to the sharp rise in share prices, the 2013 annual results of Century Huatong were expected to decline by 0-30%.

Ace Shares (600652, stock bar) was also involved in the hottest games business through mergers. After suspension for more than four months, Ace Shares recently announced it intended to acquire U9 Time with RMB 1.2 billion, transforming into a diversified listed company of coal mining & marketing and online game operation from single business of coal mining and marketing. Ace Shares intended to purchase the 100% stock equity of U9 Time together held by Liu Liang, Dai Lin and Dalian Zhuohao by issuing shares combined with cash payment, with transaction price negotiated for RMB 1.18 billion.

Recently, the application for acquisition by Crystal-Optech (002273, stock bar) and Nanfeng Ventilator (300004, stock bar) have been reviewed and approved by SRC. The announcement of Crystal-Optech on the evening of April 3 says that after review by SRC the Company's purchase of assets by cash and share issuance and raising matching funds have been unconditionally approved. Crystal-Optech intended to purchase the 100% stock equity of Yeshili held by Fang Yuan Group and Pan Maozhi through a combined way of "cash + private placement", with a total transaction amount of RMB 250 million.

Nanfeng Ventilation intended to purchase the 100% share of ZTE Equipment(including subsidiaries) from Qiu yunlong and other 22 shareholders with RMB 1.92 billion through the issuance of approximately 52.53 million shares combined with cash payment of RMB 266 million, and Nanfeng Ventilation(including subsidiaries)increased capital to the target company. Meanwhile, it intended to issue 14,12 million shares to other ten specific investors to raise matching funds, with the total funds raised not more than RMB 400 million.

Policy environment increasingly loosens

The policy and market environment for mergers and acquisition increasingly loosens.. Recently, the State Council issued "Opinion on Further Optimizing Market Environment for Enterprise Mergers and Acquisitions". According to the "Opinion", except the approval for "backdoor listing" and "purchase of assets by issuing shares" by SRC, administrative review for other mergers and acquisitions are canceled. The market generally believes that this is a signal of M & A deregulation, and the tide of market-oriented mergers and acquisitions will rise in the capital market, which greatly reduces the cost of enterprise mergers and acquisitions, and will especially further pave the way for reform of state assets and enterprises, which helps enterprises to carry out mergers and acquisitions.

The report of Societe General Securities notes that at present and in the next few years, A-share listed company will experience the tide of spectacular mergers and acquisitions. First, the macro-environment in the next few years is conducive to mergers and acquisitions of listed companies. Chinese economy is in the period of transition and adjustment, the balance sheets of local government and bank system are facing re-balance, and the marketization of interest rate is in the early stage of reform, resulting in a tight state of funding environment for the whole society, and high cost of financing for real economy. The listed companies can actively use financial superiority for industrial acquisitions to improve efficiency, in order to achieve a win-win of financial capital and industrial capital. Second, the policy environment is conducive to mergers and acquisitions of listed companies. The policy of State Council encourages mergers and acquisitions, and SRC actively implements it, which will continuously lead A shares to high incidence of mergers and acquisitions. Finally, the industrial capital begins its way to global mergers and acquisitions. With years of continuous appreciation of RMB, especially encouraged by its internationalization strategy, more and more industrial capital begin to go abroad for acquisitions.

However, some investment bankers believe that the "Opinion" really deregulates in policy for mergers and acquisitions, but from the micro-level, except the cancellation of approval for share purchase by cash, the approval for backdoor listing and assets purchase by issuing shares is not cancelled, and cash acquisition occupies a very small percentage in the current cases. It will take time for the real marketization of mergers and acquisitions.

Currently, there are already more than 20 provinces that proposed to promote the reform of state-owned assets and enterprise of mixed ownership. Among them, Shanghai, Guangdong and Chongqing are accelerating breakthroughs, SASAC in Guizhou, Guangxi, Hunan, Shandong, Anhui, Zhejiang, Jiangsu and Beijing have also clarified the direction of reform. Promote the restructuring and listing of qualified state-owned enterprises through a variety of ways, while the state-owned enterprises temporarily not qualified for listing will achieve diversified stock equity by introducing various types of investors; encourage strategic investors with financial, technology and management superiority, as well as institution investors such as the social security fund, insurance (assured insurance) funds and stock equity investment funds to participate in the restructuring of state-owned enterprises.

The new round of SOE reform is focusing on attracting strategic investment, to conduct stock equity cooperation and form mixed ownership structure based on market requirements. The investment opportunities of SOE reform have already attracted the attention of institution investors, and a number of PE are stepping up their search for suitable goals.