State-owned enterprises (SOEs) are the important material and political foundation of socialism with Chinese characteristics and important entities of the Chinese economic system. As at 31 December 2020, there were 532 SOEs listed on the SZSE market, accounting for 22% of SZSE-listed companies and 44% of A-share listed SOEs. The market capitalization of SZSE-listed SOEs was CNY 9.4 trillion, representing 27% of the SZSE stock market value, covering industries of electronic information, transportation, national defense science and technology, machinery manufacturing, etc. 2020 is the opening year of the three-year action plan for the reform of state-owned assets and SOEs. As an important platform that serves national strategies, SZSE has always been giving full support to the reform of state-owned assets and SOEs, continuously optimizing regulatory services, energizing the operation of state capital and assisting SOEs in becoming stronger, better and bigger, striving to make the multi-tiered SZSE market a frontline and an important force to deepen the reform of state-owned assets and SOEs.
Providing precision services with careful plans to implement the requirements for the reform of SOEs
The issuance of the Three-year Action Plan for the Reform of State-owned Enterprises (2020-2022) has entrusted new missions and new responsibilities to the capital market. With the Three-year Action Plan as its guideline and further improvement of the quality of listed companies as its goal, SZSE has, based on its regulatory and service duties and the characteristics of the SZSE market, laid down 16 specific work arrangements in five respects, namely, building long-acting mechanisms, expanding the depth of cultivation, improving basic systems, advancing quality reform, and deepening connection service, to further enhance systematic, coordinated and targeted services for local economy and the reform and development of state-owned assets and SOEs. As at the end of 2020, SZSE established diversified connection mechanisms with over 70 central enterprise groups, signed strategic cooperation agreements with 23 central enterprises, paid 110 visits to central enterprises and their subordinate enterprises and held 31 cultivation programs. Leveraging its advantage in professional, customized and full-chain services, it has provided key enterprises with tailored service solutions including offering policy consulting, holding project roadshows, promoting product issuances, conducting topic-based training and organizing forum activities. In the meantime, with the great support of local governments, it has opened service bases in Guangxi, Guangzhou, etc., and established comprehensive service platforms and localized service windows through the form of “headquarters+centers+bases”, to continue to improve and extend its service chain and assist in deepening the reform of state-owned assets and SOEs.
Introducing new and making better use of existing assets by providing diversified financing channels
SZSE has actively assisted quality SOEs in raising medium- and long-term development funds through restructuring for listing and refinancing, continued to urge SOEs to flexibly use bonds and asset-backed securities increased the securitization ratio of state-owned assets, and promoted market-based allocation of elements such as property, capital and technology.
In terms of IPO, in 2020, eight state-controlled companies went public on SZSE and raised CNY 3.62 trillion. Among them, Metro Design (003013) and SDG Service (300917) are from traditional industries of infrastructure construction and property management, while Peri (300831) and Topnew Info (300895) are from emerging industries of semiconductor and computer application. The smooth implementation of the ChiNext Board reform and registration-based IPO system has effectively promoted the listing and development of qualified and quality mixed-ownership enterprises.
In terms of refinancing, thanks to the new policy, market refinancing demand was released in 2020. SZSE-listed SOEs completed 36 refinancings and raised CNY 87.99 billion, representing significant increases of 111.8% and 294.8% year on year respectively. Four securities companies including Guosen Securities (002736) and Sealand Securities (000750) raised a total of CNY 28.2 billion through private placement and right issue, to replenish their capital funds. BSP (000761) and Valin Steel (000932) raised a total of CNY 10.8 billion by issuing convertible bonds, to improve product quality and efficiency and refine their capital structure.
In terms of fixed-income products, in 2020, SOEs issued 499 fixed-income products on SZSE and raised about CNY 580 billion, up 37% and 36% year on year respectively. SOEs actively responded to national policies, made full use of the financing convenience of the bond market, and flexibly allocated funds. For example, Guangxi Construction Engineering Group Co., Ltd. was the first to issue corporate bonds on SZSE for the purpose of pandemic prevention and control; the funds were tended for construction of backup emergency hospitals to fight the pandemic. Jiangsu Xugong Construction Machinery Leasing Co., Ltd. issued the first short-term, rolling asset-backed securities on SZSE, which effectively reduced the company’s financing costs. In the meantime, by holding seminars on publicly offered infrastructure REITs and so on, SZSE supported SOEs in seizing the policy opportunity of pilot projects of publicly offered infrastructure REITs, further revitalizing enterprise assets and expanding financing channels.
Adjusting structure and optimizing layout to improve the efficiency of capital allocation
SZSE has vigorously supported market-based M&A and restructuring featured by industrial integration, and continued to drive listed SOEs to speed up the optimization of distribution of state-owned economy and structural adjustment through strategic M&A and industrial integration, to inject new energy into the reform of SOEs.
In terms of acquisition of listed companies, in 2020, state capital obtained the control of 35 SZSE-listed companies in important industries and key fields such as electrical equipment, machinery equipment, pharmaceuticals and biology, which further optimized the layout of state capital. For example, CRC acquired Dirui (300396) to extend its layout on the medical industry chain. Zhuhai State-owned Assets Supervision and Administration Commission acquired Tongyu Heavy (300185) to integrate dominant enterprises on the wind power industry chain. Qingdao State-owned Assets Supervision and Administration Commission acquired Wanma Co., Ltd. (002276) to expand emerging industry clusters relating to cables and charging points. In the meantime, acquisition by state capital was actively matched with private placement arrangements. For example, while accepting the entrustment of BOW (300070) to exercise voting rights, China Urban-Rural Holdings Group Co., Ltd. planned to subscribe CNY 3.7 billion private placement shares in the company, to inject running capital into the company to boost its development.
In terms of major asset restructuring, in 2020, SZSE-listed SOEs implemented 23 restructurings, involving CNY 243.7 billion. The quantity and amount accounted for 29.5% and 70.0% on the SZSE market, the highest over the past five years. Through asset restructuring, SOEs mainly engaged in traditional manufacturing replaced old growth drivers with new ones, and their business development sped up. For example, FAW Car Co., Ltd. replaced money-losing business and acquired FAW Jiefang (000800) to transform from passenger car business to commercial vehicle business. AVIC XAC (000768) stripped non-main business assets through asset swap, to realize specialized integration of complete-machine manufacturing assets of large and medium-sized military and civil aircrafts. CRM (000927) reorganized *ST TJFaw to achieve transformation and development.
In terms of spin-off listing, in 2020, eight SZSE-listed SOEs disclosed proposals or suggestive announcements on spin-off listing, accounting for 19.5% of the total number on the SZSE market. The underlying securities of spin-off are mainly in medicine manufacturing industry, computer, communications and other electronic equipment manufacturing industries, chemical materials and chemical manufacturing industry, etc. For example, GRG Banking (002152) spun off its financial IT services business, and TLYS (000630) spun off its subsidiary Anhui Tongguan Copper Foil Co., Ltd., which is on the lists of “Top 100 Scale Merit Enterprises” and “Top 100 High-growth Enterprises”. The spin-off arrangements that conform to their long-term strategic planning can help listed SOEs focus on certain business and optimize resource layout and are thus of great significance to improving their overall competitiveness.
Improving governance and strengthening incentive to stimulate internal drive
The key to improving the quality of listed companies is corporate governance. SZSE has steadily promoted listed SOEs to use the capital market to implement the mixed-ownership reform, and encouraged them to make good use of equity incentive and employee stock ownership instruments and accelerate transition to market-based operating mechanisms, to stimulate the endogenous power that improves the quality of SOEs.
In terms of mixed-ownership reform, listed companies have become the main carriers of the mixed-ownership preform. In 2020, SZSE-listed SOEs steadily deepened the mixed-ownership reform. They and enterprises with other types of ownership complemented each other’s advantages and promoted each other for common development. For example, TCL Tech. (000100) acquired a 100% stake in TJSEMI’s (002129) parent company Zhonghuan Group, to form a new pattern on the semiconductor industry chain in which enterprises complement each other’s advantages and develop in a coordinated manner. Another example, SZSE-listed companies that are controlled by universities such as Shanda Wit (000915), DAJY (002030), Gsafety (300523) and TUS-EST (000826) implemented the general requirements on the reform of university-controlled enterprises, providing greater room for the companies’ subsequent development.
In terms of equity incentive and employee stock ownership, equity incentive is the “internal propeller” that drives high-quality development of listed companies. In the transformation and upgrading of SOEs, their demand for talents has increased. In 2020, SZSE-listed SOEs implemented 35 equity incentive or employee stock ownership plans, up 34.6% year on year, the highest over the past five years. Incentive shares totaled 1.46 billion, accounting for 1.9% of the share capital in average, higher than the average of the whole market. For example, BOE (000725) bought back its shares with nearly CNY 2 billion own funds to implement an equity incentive plan that covered nearly 3,000 core technical personnel and management backbone, among whom over sixty percent are R&D personnel, to fully motivate core backbone talents to make innovations and start new businesses.
The year 2021 is crucial for the three-year action plan of the reform of SOEs, as all aspects of the reform will enter into a new phase of rapid progress and substantive breakthroughs. Next, SZSE will adhere to serving national strategies and high-quality economic development. Following the schedule and roadmap of the three-year action plan, SZSE will make the best use of the circumstances and adopt precision measures to actively assist in the in-depth implementation of the reform of state-owned assets and SOEs, give full play to its role in guiding and driving listed SOEs, and promote overall quality improvement of all listed companies.
