Feb. 21 – Mergers and acquisitions (M&As) of listed companies in China during 2006 to 2010 reached US$150.2 billion, showing the capital market is playing an increasingly important role in the country’s M&As, Director of the Listed Company Supervision Department at the China Securities Regulatory Commission (CSRC) Ren Yanghua told China Securities Journal during an interview on February 16.
According to the statistics Ren provided, in 2010 alone, 47 major M&A projects took place with a total exchange amount of US$20.3 billion.With the appreciation to the positive impact M&As brought to the reform and growth of state-owned enterprises, China is giving more encouragement to M&As in industries that currently require more resource concentration and structural upgrades. These encouraged industries that receive favorable treatment include machinery manufacturing, transportation, cultural dissemination, mining, steel and power.
Such policy orientation did not only lead the country’s M&A development over the past five years to a surge in quantity, but also an improvement in quality – M&As for optimized resource allocation and industrial structure upgrade purposes are becoming the main stream.
Ren, though, also pointed out that the CSRC will be less supportive to M&A applications in the real estate industry – the industry that has grown in prosperity over the past five years but is currently facing restrictions following a series of tightening policies in the field.
When asked about 2011’s work emphasis, Ren promised that the CSRC will work on creating a more friendly capital market for M&As by establishing an increasingly market-oriented pricing system, realizing simplified and transparent review procedures, and emphasizing market regulations.
In order to push forward the market-oriented pricing system reform in the new year, Ren believes it is important to diversify the M&A exchange tools by finding new financing avenues and improving the stock-for-stock purchase system during M&As.
An increasingly effective market regulation system is also turning into an issue of concern. In addition to keeping the effort to crack down on insider trading, China also plans to impose more regulations on back door listing to ensure the qualifications of listed companies.
During the interview, Ren also added that 2011 is going to be a year when overseas M&As prosper. So far this year there have already been 14 M&A plans announced by listed companies, with an approximate total exchange of US$2 billion.
It is even more noticeable that 8 out of the 14 M&A projects were announced by small and medium-sized enterprises (SMEs), thanks to the country’s sufficient capital supply that enabled the SMEs to raise even more funds than they had planned.
Acquiring advanced technologies through the acquisition of foreign quality assets is a major focus during Chinese enterprises’ overseas M&As. Just in February, a Sichuan-based aviation software company, Wisesoft, announced its decision to acquire an A320 flight simulator that is worth US$123.2 million from the world’s leading aviation training company – FlightSafety International.
Equity acquisition is also becoming a popular avenue to increase Chinese companies’ global presence. A Shandong-based polyurethane products producer and marketer, Wanhua Industrial Group, is reported to be one of the world’s leading three methylene diphenyl diisocyanate manufacturers after its recently announced 96 percent equity acquisition of the Hungarian chemical company BorsodChem’s, worth some US$1.7 billion.
Mostly attracted to industries of energy and resources, manufacturing, and information technology, Chinese companies’ interests in overseas M&As will continue to increase in the near future.
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