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Since the beginning of this year, the A-share market has seen frequent changes in the ownership of listed companies.

According to incomplete statistics from Wind data, as of July 9, a total of 52 listed companies have issued announcements of "actual controllers to be changed or have been changed". The reporter noticed that the new actual controllers of many listed companies are local state-owned assets, and the change of state-owned assets in listed companies has set off a small climax in the past six months.

Industry insiders believe that local state-owned assets can directly and efficiently drive local industrial development by acquiring high-quality listed companies and introducing them to the local area, rather than the currently popular fund investment promotion and industrial park investment promotion. With the introduction of new capital market regulations such as the new "Nine National Regulations", the pace of local state-owned assets taking over high-quality listed companies may accelerate, but it will also bring certain risks and challenges.

State-owned assets are enthusiastic about acquiring listed companies

"We plan to use 1 billion yuan to acquire a listed company, but a little more is acceptable." This demand raised by the head of investment and promotion of a district-level state-owned asset platform in a 1.5-tier city left a deep impression on Zhao Peien, an investment partner of Weizhi Capital. He told reporters that he had contacted many local state-owned assets since last year, and they all wanted to acquire controlling stakes in listed companies in order to increase the number of local listed companies and drive local industrial development.

Coincidentally, a partner of a Shenzhen VC institution with a management scale of about 5 billion yuan is also helping a district-level local state-owned asset in Zhejiang to find suitable listed company targets. "The number of listed companies in this place has not increased in recent years. They want to use the fund channel to find listed companies that are in line with the local industrial structure and have good quality." The person in charge told reporters.

Relevant data show that in recent years, state-owned assets have become an important "buyer" in the control transactions of listed companies. According to statistics from the M&A investment bank "Wenyi Fuxin", between 2018 and 2023, state-owned asset buyers acquired 222 listed companies in the control transaction market, and there were 94 transactional control changes in 2023 (excluding control changes caused by non-transactional factors), of which 37 were state-owned acquirers, accounting for 39%.

Recently, several listed companies announced changes in their actual controllers. On July 5, Aotejia announced that Yangtze No. 1 Industrial Investment will become the company's new controlling shareholder, and the actual controller will be changed to Yangtze River Industrial Investment Group, which is wholly owned by the Hubei Provincial State-owned Assets Supervision and Administration Commission. On the same day, Shiyun Circuit also announced that Guangdong Shunde Holding Group Co., Ltd. will acquire 25.9% of Shiyun Circuit's shares. After the transfer is completed, Shunde Holding Group and its concerted actors will hold a total of 29.19% of Shiyun Circuit's shares, and the actual controller of Shiyun Circuit will be changed to the Shunde District State-owned Assets Bureau of Foshan City.

"Industrial parks of various levels have spread across the country, and government-guided funds have also developed to district and county governments. The difficulties of return investment and direct investment have become increasingly apparent, and there is not much room for local governments to attract investment with these two models." Zhao Peien believes that local governments' investment promotion needs to be further advanced and iterated to adapt to China's economy and capital markets under the new situation. Acquiring controlling stakes in listed companies and using them as a platform to integrate local industries may become version 3.0 of local investment promotion.

Different from the previous wave of state-owned assets bailing out listed private enterprises, this wave of state-owned assets is aimed at industrial mergers and acquisitions. When communicating with local state-owned assets, Zhao Peien found that some local state-owned asset leaders have clear logic and plans for buying listed companies and subsequent plans. "For some places, listed companies are regarded as capital platforms and an important carrier serving the integration and upgrading of local industries." According to Wen Yi Fuxin's statistics, state-owned assets have basically withdrawn from the shell buying market, and the main acquisition targets have changed to companies with industries. Among the acquirers of companies with industries, the proportion of state-owned assets will increase to 50% in 2023.

A senior investment banker from a small brokerage firm in South China analyzed to reporters that for listed companies, there are roughly three reasons why they are willing to transfer controlling rights: first, affected by the current internal and external economic environment, the operating conditions of many listed companies are not ideal, and at the same time, supervision is becoming stricter, making it more difficult for them to obtain refinancing in the capital market. Being acquired by state-owned assets may bring more opportunities to the companies; second, the major shareholders of listed companies themselves want to cash out and leave, and will also consider selling control; third, companies want to introduce strategic shareholders for future strategic considerations.

"Small and beautiful" companies are the most popular, but recruitment progress varies from place to place

Compared with the small proportion of investment currently offered by fund investment, directly acquiring the controlling stake in a company can obviously give full play to the "leader effect" of the company in the local industry. But in fact, it is not easy to achieve a match between the needs of both parties. The interviewees generally said that in the past two years, there have been many talks and observations, but not many transactions have actually been concluded.

What kind of listed companies are more favored by local state-owned assets? "In principle, local state-owned assets can be the majority or second largest shareholder of small and beautiful companies that conform to the local industrial structure, have good net profits," the partner of the above-mentioned VC institution told reporters.

Zhao Peien has come into contact with dozens of local state-owned assets in the past two years. He painted a "portrait" of the target listed companies that local state-owned assets are interested in. In addition to the industrial attributes and company operations mentioned above, there are two important parameters: one is market value, and the other is equity concentration. Listed companies with small market capitalizations between 2 billion and 5 billion yuan, with relatively dispersed equity and major shareholders holding no more than 30% of the shares, are usually more suitable candidate targets. "After two and a half years of adjustment in the secondary market, coupled with the continuous IPO supply in the past, there are a large number of tradable targets below 5 billion yuan in the market. The advantage of choosing companies with dispersed equity is that local state-owned assets only need to acquire about 20% of the company's equity to obtain control."

A very realistic problem is that compared with industrial park investment and fund investment, directly buying a listed company is more of a test of a place's financial strength. Zhao Peien did some calculations: if the transaction market value is 3 billion yuan, it will cost about 900 million yuan to acquire 29.9% of the shares. On this basis, local state-owned assets can also use some financial leverage, such as using 50% of the merger and acquisition loans, which requires 450 million yuan of own funds; if a merger and acquisition fund is formed, 40% of the own funds will be used, and 360 million yuan will also be needed. "Local state-owned assets acquiring the control of listed companies is a high-leverage game, and in the current market environment, most of the state-owned assets dare to use leverage and can use leverage."

The reporter learned from the industry insiders that many local state-owned assets are now very familiar with capital operations. On the one hand, they benefit from the large amount of fund resources accumulated in the fund investment process in the past two years. On the other hand, more and more outstanding financial industry practitioners have begun to pour into local state-owned investment institutions, providing good talent guarantee for state-owned investment. "Some local state-owned asset leaders, whether in terms of market awareness or professional understanding of industry and investment, are beyond my expectations. They are indeed professional." The partner of the above-mentioned VC institution told the reporter.

However, the person also admitted that he had looked at several projects last year, but none of them were successful. "Good companies will not be sold and will not worry about selling. Bad companies are not favored by the local government. Even if both parties are interested, it is not easy to reach an agreement on the terms."

Zhao Peien also found that from the perspective of the progress of attracting investment and promoting local industrial development through the acquisition of listed companies, there are large differences among regions. Some have completed the acquisition of listed companies and are ready to make persistent efforts, some are full of confidence and have sufficient bullets to prepare for a big move, some are waiting and hoping to see more clearly, and some have just experienced personnel changes and need some time before starting. But in his opinion, under the current economic environment and capital market structure, the pace of state-owned assets in the acquisition of control of A-share listed companies is likely to be faster and faster, and high-quality listed company targets are likely to become the target of state-owned assets in various regions.

State-owned assets still need to "open their eyes" when selecting listed companies

As local governments shift from "land finance" to "equity finance", more and more local governments are actively exploring the use of cash to exchange for control of listed companies, thereby achieving a win-win situation for local taxation, employment, industry, etc. However, the reporter learned from interviews that not every local state-owned asset can achieve satisfactory results after acquiring a listed company.

"A listed company we acquired previously did not develop as expected and has now been delisted." An official in a central city's investment promotion office told reporters that although there is now a boom in acquiring listed companies in various places, they will be more cautious in this regard because they have learned from past experience and have no such plans for the next two years.

In the past year, Zhao Peien has visited hundreds of A-share listed companies as a buyer and has negotiated with more than 30 actual controllers of companies. He believes that local state-owned assets need to pay attention to five major issues in the process of acquiring listed companies: first, the shareholding ratio and equity status of the controlling shareholder, such as whether there are restrictions on sales or pledges; second, the asset status of the listed company, such as book cash and liquid assets; third, whether it is necessary to divest the listed company's industries and related assets; fourth, whether the listed company can relocate to the local area; and fifth, whether the listed company's industries have integration value. "Even if the acquisition is completed, it is just the beginning, and the local industry integration capabilities will be tested in the future," he said.

The most difficult problem among them is the relocation of listed companies. Generally speaking, when local state-owned assets acquire the controlling rights of listed companies, they will attach the condition of relocation to the local area. On the one hand, this can increase the number of local listed companies, and on the other hand, it can also create employment opportunities and bring tax revenue to the local area. In addition, local state-owned assets can expand and strengthen the main business and performance of listed companies by introducing local resources, thereby improving the company's valuation and bringing certain investment returns to local state-owned assets. However, if a listed company moves its headquarters from one place to another, it means that there will be one less listed company in the original place. "Many places will not let a listed company go easily, let alone move to another city. Even moving to another district in the same city is not necessarily easy." The partner of the above-mentioned VC institution told reporters that the chances of successfully digging out listed companies from first-tier cities or 1.5-tier cities with a large number of listed companies and a high level of marketization are higher.

Many local governments have gradually realized that since the "August 27 New Policy" in 2023, the threshold for listing has become higher and higher, and it has become increasingly difficult for companies to go public independently. Compared with supporting local companies to go public, acquiring a listed company to integrate local industries seems to be a faster path. In addition, the interviewees generally believe that the current overall valuation level of A-shares is low, and it is a good time for local state-owned assets to enter listed companies and carry out related industrial layout.

But at the same time, the introduction of the new "Nine National Regulations" and supporting rules in 2024 will further strengthen market supervision and the corporate delisting system. Local state-owned assets need to "open their eyes" when screening listed companies. "If a company's performance does not meet expectations or there is even a risk of delisting, this is the biggest risk facing state-owned assets in acquiring listed companies at this stage," said Zhao Peien.

Source: Securities Times official microblog

Statement: All information content of Databao does not constitute investment advice. The stock market is risky and investment should be cautious.

Editor: He Yu

Proofreading: Yang Shuxin

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