The successful turnaround of debt-ridden Foshan Chemical Fibre Complex explains why Beijing is pushing hard for mergers and acquisitions.
After being taken over by Yizheng Chemical Fibre Co in August, the polyester plant in southern China has bounced back into the black, making 1.38 million yuan (about HK$1.28 million) in earnings last year.
Foshan Chemical vice-general manager Li Jianxin said Yizheng had launched significant reforms to the plant's operations.
First, Foshan Chemical's debt portfolio was reshuffled. Its average interest rate on loans was lowered to about 14 per cent from 22.4 per cent, substantially relieving the company of its financial burden and providing easier access to funding.
Yizheng took over Foshan Chemical, China's fifth largest polyester-maker, in return for guaranteeing 1.08 billion yuan of its debt and agreeing to pay 94 million yuan for land-use rights. 'Banks are now more willing to offer us preferential interest rates because of Yizheng's back-up,' Mr Li said.
The plant's acute funding problem was aggravated last year by a slump in the global polyester market.
Mr Li said most of the plant's facilities were idle when Yizheng came in.
