Engine making units of China's Avic set to be spun off, shares surge

A new firm, controlled by the central government, will become the parent of the three companies, state media reports

PUBLISHED : Wednesday, 14 October, 2015, 1:13pm
UPDATED : Wednesday, 14 October, 2015, 5:23pm

Aviation Industry Corporation of China (Avic) is preparing to spin off three aircraft engine subsidiaries, a newspaper reported on Wednesday, in a move that is part of a broad government effort to improve the competitiveness of China’s state-owned conglomerates.

A new firm, controlled by the central government, will become the parent of the three companies, the official Shanghai Securities News said without identifying the source of the information.

Sichuan Chengfa Aero-Science and Technology , Avic Aero-Engine Controls and Avic Aviation Engine Corp announced in separate stock exchange filings late on Tuesday that Avic may not be their controlling shareholder after a government-related restructuring.

Stocks for the three firms climbed by their daily limit of 10 per cent on Wednesday.

The restructuring was being handled by the State-owned Assets Supervision and Administration Commission, the central government's assets administrator, an Avic spokesman said, adding that Avic was not involved in the process.

An executive at Sichuan Chengfa said the firm would remain under the control of the state.

The central government announced in September guidelines for state-owned sector reform, stipulating that strategic industries, which include aviation manufacturing, would remain under control of the government.

Beijing is keen to help create innovative, globally competitive conglomerates able to export Chinese know-how and high-end manufacturing to the world. So far this year, the state has overseen the merger of the two biggest nuclear power firms and the top two train makers.

In other restructuring, Avic Capital will lead a capital injection of up to 4.99 billion yuan (HK$6.1 billion) into two jet fighter makers in a move aimed at shoring up key military manufacturers.

Analysts have said the capital injection may be part of plan to merge Avic Capital with Avic Aircraft and Avic Electromechanical System.