Xinhua News Agency

Merger plan to create five sector giants

PUBLISHED : Thursday, 20 November, 1997, 12:00am
UPDATED : Thursday, 20 November, 1997, 12:00am

Guangzhou city government plans to form five group companies in a bold merger plan designed to create giant corporations capable of competing in the global marketplace.

The move aims to increase the competitiveness of Guangzhou-based companies through mergers and acquisitions, in line with recent party policies.

Each of the groups is to be formed around a listed company with representation in one of five sectors: power, steel, property, hotels and tourism, and light industry.

They would be forced to swallow assets bigger than themselves as they transformed into new holding companies for the city, Xinhua news agency reported. Shenzhen-listed Guangdong Electric Power, for example, is expected to change from being a power operator into a utility.

Assets to be injected into it include the city's metro, new airport and outer ring road, as well as basic infrastructure facilities such as gas, water and electricity supply.

Guangzhou Iron and Steel Corp (Guanggang) is intended to become a chemical and steel industries group.

It will take in quality chemical companies as part of its expansion, changing its orientation from a metallurgical industry to a chemicals industry.

Guanggang, which ranked 21st among steel makers in terms of 1994 sales, has embarked on a six billion yuan (about HK$5.57 billion) expansion to make it the steel manufacturing base of Guangdong province under the Pearl River Delta development blueprint covering the next 15 years.

Dongfang Hotel has been identified as a group company which will incorporate businesses in the hotel and tourism industry.

Zhujiang Enterprise will become the holding company for property development and construction.

Guangzhou Langqi will incorporate light industrial operations such as manufacture of beer, light-bulbs, toothpaste and textiles.

While Guangzhou ranks third in the mainland for economic growth, it lacks group companies capable of competing globally.

Xinhua said experts believed the formation of group companies around existing listed companies was the most low-cost way of reallocating assets of state-owned enterprises, and was an efficient way to sharpen the competitive edge of the enterprises.

The experts believed the city should allow the companies to dispose of poor assets and acquire those with quality.