State-owned enterprises

China’s SOE restructuring gathers pace as Cofco Capital lines up new shareholders

The China Structural Reform Fund will inject 800 million yuan into a 6.9 billion yuan mixed-ownership restructuring programme

PUBLISHED : Tuesday, 22 August, 2017, 3:01pm
UPDATED : Tuesday, 22 August, 2017, 10:46pm

China’s Cofco Capital Investment is lining up seven strategic investors, attracting 6.90 billion yuan ($1.03 billion) of funds for its mixed-ownership reform that is aimed at boosting its competitiveness, according to state-owned asset-operating company, China Chengtong Holdings Group.

The China Structural Reform Fund Corp will inject 800 million yuan of capital and become the fifth largest shareholder in Cofco Capital. Other shareholders include Beijing Capital Agribusiness Group, Guangdong Wen’s Foodstuff, Shanghai International Group and other financial institutions.

“The combination of state-owned with private capital, and the agricultural industry with finance, will create a platform of harmony and cooperation, that will better serve the internationalisation of COFCO’s agriculture supply chain,” China Chengtong said in a statement.

China has called for the restructuring of state-owned enterprises to advance its supply side reforms, with the National Development and Reform Commission approving the third batch of state firms in a pilot scheme for rejuvenation with private capital through mixed-ownership.

Cofco Capital’s mixed-ownership reform comes ahead of China’s 19th party congress in autumn this year. The nation is at a critical juncture of its economic transition, confronting slowing growth and structural imbalances.

The combination of state-owned with private capital, and the agricultural industry with finance, will create a platform of harmony and cooperation, that will better serve the internationalisation of COFCO’s agriculture supply chain
China Chengtong Holdings Group

China’s 102 central SOEs manage the bulk of the country’s state assets, but their monopolies have shut out smaller market entities and led to low efficiency and poor service.

Similar to the results seen in previous attempts to restructure SOEs, analysts warned that the latest mixed-ownership reform may result in little, if any, impact to their operations or to make them more market-oriented. It might also actually instil more communist ideologies into the private sector, they said.

“The restructuring of SOEs have been ongoing for a few years before leading to their IPO listings in Hong Kong,” Qiu Zhicheng, strategist at ICBC said. “But some have led to no turnovers after the listings, in which the company restructuring would have been meaningless.”

President Xi Jinping’s administration has called for reforms to require SOEs to maintain a controlling and influential role in the overall economy.

But some have led to no turnovers after the listings, in which the company restructuring would have been meaningless
Qiu Zhicheng, ICBC strategist

In April, China’s biggest foodstuffs conglomerate, China Oils and Foodstuffs Corp (Cofco) said it planned to reform and introduce strategic investment to 18 of its companies, including Cofco Capital Investment, so as to enable them to be listed by 2018.

The mainland Chinese media have reported that Cofco will hold at least 61 per cent in the company and new shareholders will own a total of 39 per cent equity at most, with 5 per cent of which to be held by an employee shareholding plan after the increased the registered capital.

Meanwhile, the country’s second-largest mobile carrier by subscribers, China Unicom, said it is selling 78 billion yuan of shares, and lining up 14 big shareholders to invest into the company.

China Unicom secures cash injection, but missteps mar ownership reform roll out

Cofco Capital Investment was established in June 1997. Its businesses cover trust, futures, insurance, banks and funds. By the end of 2016, total assets and net assets of the company were 46.944 billion yuan and 15.381 billion yuan respectively. It achieved 7.35 billion yuan of operating revenues and 1.27 billion yuan of net profits in 2016. Its net profits were 936 million yuan and 10.75 million yuan for 2015 and 2014 respectively.

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