Military to tap markets for 60b yuan

PUBLISHED : Wednesday, 26 December, 2007, 12:00am
UPDATED : Wednesday, 26 December, 2007, 12:00am

National defence to modernise, upgrade shareholding structure over the next five years

The mainland's military sector is expected to raise up to 60 billion yuan from the capital markets over the next three years to upgrade the defence industry's capability and technology, a senior official from the Commission of Science, Technology and Industry for National Defence (Costind) said.

In about five years, most of the military sector's companies should have modernised their shareholding structures, said Wu Fenglai, the head of Costind's reform department, in a commentary published in the China Securities Journal yesterday.

At the end of last year, only 22.5 per cent of military firms had completed these reforms, Mr Wu said.

These would have transformed them from being pure state-owned companies into companies with multiple shareholders - which was much lower than the 65 per cent average in other industries, he said.

'Encouraging military-related companies to enter market competition and to expand with help from the capital markets is an important way to help them develop,' he said.

In June, Costind unveiled new guidelines to encourage military firms to expand manufacturing activities for civilian applications and to raise funds through the capital markets. As part of the initiative, government-owned publicly traded firms are allowed to acquire all or some assets held by military industrial enterprises.

For example, Shanghai-listed China State Shipbuilding, formerly known as Hudong Heavy Machinery, earlier this year acquired 12 billion yuan worth of shipbuilding assets from its state-owned parent firm through a private share placement, blazing a trail for domestic military industrial companies.

Last month, Shenzhen-listed Xi'an Aircraft International Corp gained approval to issue shares to buy assets from its parent firm.

'We'll see even more asset injections into listed military firms over the next one to two years,' Chen Gang, an analyst at Oriental Securities, said in a recent report.

Other military companies are also planning to launch initial public share offerings on the mainland or offshore and some are seeking strategic investors.

China South Industries Motor, which was set up in January last year from the restructured car and car-parts businesses of China South Industries Group, was aiming to raise five billion yuan from a share sale, Mr Wu said.

Aircraft-maker China Aviation Industry Corp (Avic I) was seeking international investors in preparation for an overseas listing of its commercial aircraft unit, a mainland newspaper reported in June.

China National Aero-Technology Import & Export Corp, which controls three Shenzhen A-share companies and three Hong Kong H-share firms, is also seeking strategic investors before it lists the whole group.

Mr Wu said military industrial companies were expected to raise between 50 billion yuan and 60 billion yuan from the capital markets by the end of 2010.

By the end of 2010, listed military-related firms were expected to generate 180 billion yuan of turnover a year, he said.

Meanwhile, Mr Wu said the government would allow foreign companies to invest in the country's military industrial sector, except for a few 'key military enterprises with national strategic security concerns' which would remain in state hands.

Foreign investment in listed military industrial companies through the stock market was also allowed but should be limited to less than 5 per cent of the company, he said.