M&A and reorganization are important ways to realize optimal allocation of stock resources in the capital market. In 2019, following the overall arrangement of China Securities Regulatory Commission (CSRC) to deepen the reform of the capital market on all sides, SZSE actively implemented the working requirements of “the Four Awes (stand in awe of the market, rule of law, professionalism and risks) and one joint force (The capital market’s development needs all the efforts made by all sides)”, furthered the market-oriented reform of M&A and reorganization, strengthened the “whole-chain” regulation of M&A and reorganization, and intensified services to listed companies in achieving high-quality development. SZSE also helped give play to the functions of market platforms and improve resource allocation efficiency, and assisted in the building of a standard, transparent, open, dynamic, resilient capital market.
Improving quality and efficiency with new highlights emerging
In 2019, companies listed on SZSE actively improved quality and optimized transformation and upgrading through M&A and reorganization, which produced significant achievements and many highlights. A total of 1,628 M&A and reorganization deals were made on SZSE throughout the year, and the cumulative transaction amount was CNY1.08 trillion, accounting for 55.47% and 54.00% in the whole market respectively. In terms of major assets reorganization, 150 reorganization plans were disclosed, with a total transaction amount of CNY513.426 billion, up 8.62% year on year; 97 major assets reorganization plans were completed, with a total transaction amount of CNY432.573 billion (excluding supporting financing), up 87.50% year on year. In terms of M&A of listed companies, 604 M&As were disclosed throughout the year, up 22.52% year on year, and CNY287.313 billion was involved, up 18.94% year on year.
The M&A and reorganization mainly have the following characteristics:
First, returning to the source, focusing on main business, and gathering new drivers. The M&A of listed companies based on industrial logic was the mainstream, and industrial integrated reorganization became the “keynote”. Both the quantity and the amount involved accounted for over sixty percent. Industries and entities in M&A and reorganization had more distinct characteristics. Reorganization valuation returned further to a rational level. The average appreciation rate of reorganization targets was about 1.8×, a significant decrease of 55.93% from the previous year. The average appreciation rates of the Main Board, the SME Board and the ChiNext Board of SZSE were 1.3×, 1.7× and 2.4× respectively, demonstrating more rational and practical transaction logic.
Second, advancing the supply-side structural reform through market-oriented services, and breaking new ground. Throughout 2019, state-controlled companies listed on SZSE released 37 major assets reorganization plans, totaling CNY287.02 billion. The positive role of M&A and reorganization became more apparent. A number of exemplary cases such as China Merchants Group’s platform-based integration of property management assets, CITIC Group’s special steel asset securitization and Easyhome’s participation through reorganization & listing in the mixed ownership reform of state-owned enterprises emerged, pushing forward the SOE reform both in scope and in depth. CMSK’s acquisition by capital increase, which was successfully completed with a transaction amount of CNY145.817 billion, was the reorganization plan with the largest transaction amount in the A-share market in 2019. SZSE-listed companies in cement, nonferrous metals, steel and chemical industries such as Daye Special Steel and Extra ST HC Chemical continued to put effort in industry optimization and integration and clearing of excess capacity, bringing development up to a new level.
Third, assisting in the bailout of private companies and facilitating their development, and winning new opportunities. In 2019, 87 privately-controlled listed companies including Hainan Haiyao and Extra ST Huangtai Wine introduced strategic investors through equity transfer and integrated resources from multiple parties, through which they turned their difficult capital situation around. 29 SZSE-listed private companies including Eternal Asia and Ideal introduced state-owned capital and realized mixed ownership reform. 113 SZSE-listed private-owned companies disclosed reorganization plans, involving an amount of nearly CNY250 billion, to bail themselves out and realize development through market-based means.
Fourth, supporting innovation and upgrading of cross-border transactions and cultivating new drivers. More and more SZSE-listed companies are using “bringing in” and “going global” to increase technological content, enhance core competitiveness and realize industrial upgrading. In 2019, a total of 52 SZSE-listed companies disclosed overseas M&A and reorganization deals. Sinomine planned to acquire the global scarce cesium resource controlled by companies like Tanco, and Guoxin Micro intended to acquire Linsenx’s coded intelligent security chip business.
Fifth, serving stock companies and clearing market access to help them gain new vitality. Since 2019, a number of SZSE-listed companies have revitalized market resources, resolved listed company risks and improved the mechanism for the survival of the fittest, through M&A, reorganization & listing, clearing assets swap, etc. SZSE disclosed 9 reorganization & listing plans. Easyhome landed the capital market through the back door Wuhan Zhongshang with a price of CNY36 billion, furthering its expansion in the field of home new retail. 15 companies sold major assets, stripping poorly-performing, money-losing assets and reducing burdens.
Moreover, market-based game was more sufficient. Many reorganization plans have not only set performance commitments but also designed rewarding arrangements for excess earnings, and some plans have laid down additional rights. For example, in the acquisition plan of Carrefour China by Suning, it’s said that the subsequent transferor and the transferee shall enjoy “put option” and “call option” respectively regarding the remaining 20% equity in Carrefour China, further enhancing market-based game.
Promoting reform, regulation and service simultaneously to make new progress
In 2019, SZSE continued to deepen reform, enhance regulation and intensify service, optimized institutional supply, stimulated market vitality, encouraged and guided listed companies to improve quality through M&A and reorganization, advanced classified regulation, precision regulation and “whole-chain” regulation, strengthened regulation effectiveness, and gave full play to the market functions of M&A and reorganization.
First, deepening reform. In promoting regulation innovation, SZSE contributed ideas and exerted efforts for spin-off listing pilot, optimization of reorganization & listing standards, directional convertible bond pilot, etc. In deepening effective regulation, SZSE integrated a number of memos, instructions and notices of the Main Board, the SME Board and the ChiNext Board, unified regulatory standards, released the guide for information disclosure of major assets reorganization, and facilitated regulated development of the market. In implementing reform measures, SZSE assisted in the implementation of directional convertible bonds, formulated handling procedures, enabled code range and reformed system process, and served King-Strong in completing the issuing registration of its first directional convertible bond on the A-share market. So far, 29 SZSE-listed companies have disclosed reorganization plans involving issuance of directional convertible bonds. SZSE strictly implemented the new regulations on trading suspension/resumption. Throughout 2019, the number of companies involved in trading suspension/resumption for reorganization reduced by 73.67% from the previous year, and 46 companies directly disclosed reorganization plans without suspending trading. SZSE supported companies’ financing and replenishment of working capital for reorganization. 16 companies including Fawcar disclosed fund raising plans for debt repayment or replenishment of working capital, involving a total amount of CNY 13.709 billion, to meet capital needs.
Second, intensifying services. With SOE reform at the core, SZSE served the Main Board in becoming better and stronger. Throughout 2019, SZSE conducted nearly 100 visits, surveys and communication activities with SOEs, organized or participated in nearly 30 SOE reform training sessions and lectures, and vigorously supported a group of SOEs such as CMSK, CITIC Steel, Fawcar and SJZ DFE in becoming better and stronger. With the development of private companies as the focus, SZSE continued to serve the SME Board in pursuing stable development. In 2019, SZSE held a number of seminars and training classes between the regulator and market institution experts and listed companies, actively assisted in the bailout of listed private companies, and did a good job in the information disclosure of 179 private companies concerning equity transfer, change of control and introduction of strategic investors, trading suspension/resumption, stock ownership transfer and other matters. In 2019, SZSE reduced 135 companies with a high pledge ratio and supported 114 private companies in solving difficulties in their development and transformation through M&A and reorganization, among which, private companies listed on the SME Board took the majority. With entrepreneurship and innovation as the orientation, SZSE actively served the ChiNext Board in its development and expansion. SZSE actively served deep integration of capital with technology, and offered “one package” service in policy consulting, plan adjustment, training & guidance and technical support. In 2019, over fifty percent of the targets that the ChiNext Board listed companies planned to acquire were from strategic emerging industries. For example, KFMI improved its product types by acquiring Soleras Holdco, which further enhanced it market position in the field of high sputtering target materials.
Third, enhancing regulation. On the one hand, SZSE strengthened classified regulation and utilized regulatory resources scientifically. SZSE optimized the review model of reorganization plans. In principle, SZSE will no longer inquire about preliminary reorganization plans, and will reduce inquiries about reorganization plans involving industrial integration, transformation and upgrading and so on, strengthen pre-event and in-process regulation of reorganization plans concerning key companies and major risks and conduct repeated inquiries when necessary. A total of 145 reorganization inquiry letters were issued throughout the year, of which 31 reorganization plans involved the issuance of two inquiry letters. On the other hand, SZSE strengthened “whole-chain” regulation to facilitate regulated development of the market. In 2019, affected by multiple factors from both domestic and overseas environments, the risk of unfulfilled commitments and the risk of goodwill impairments were the most prominent among listed companies. For example, Zeus provided CNY 4.06 billion allowance for goodwill impairments for its reorganization targets, which led to CNY 7.151 billion losses to the company. Other examples are Dongfang Precision and Tanac Automation. The performance of their reorganization targets fell short of expectations, or the transaction counterparts had disputes about performance compensation. SZSE continued to track the implementation of reorganization plans, questioned every company involving relevant problems, enhanced regulatory coordination, applied for field inspection and audit participation when necessary, and gave disciplinary punishments to companies involved in 11 failures to fulfill performance commitments.
In 2020, the domestic M&A and reorganization market is in the ascendant. SZSE will always adhere to the market-based, rule-of-law direction, conscientiously study and implement the new securities law, follow the unified arrangements of CSCR, focus on promoting the action plan on improving the quality of listed companies, carry out and deepen the requirements on the market-oriented reform of M&A and reorganization, improve basic systems, enhance regulation effectiveness and service level, stimulate market vitality, give play to the role as the main channel for optimal allocation of resources, facilitate technological innovation, advance industrial transformation and upgrading, support listed companies in achieving high-quality development through M&A and reorganization, and strive to provide more efficient, higher-quality financial services for the development of the real economy.