SOE launches equity investment joint venture and fund to aid mixed ownership moves

State-owned China Chengtong Holdings Group Ltd unveiled its new equity investment company and fund on Tuesday in Shanghai, as it pursues and promotes mixed ownership reform.

The new equity investment company, Shanghai Chengtong Equity Investment Fund Management Co Ltd, was set up by China Chengtong Oriental Asset Management, a wholly owned subsidiary of Chengtong Group, and Shanghai J. Sagacity Investment and Management, with a registered capital of 50 million yuan ($7.21 million).

Chengtong Oriental will hold a 60 percent stake in the company and Shanghai J. Sagacity will hold 20 percent. The remaining 20 percent will be held by other investors comprising social capital and management groups.

The Chengtong Oriental Mixed Ownership Investment Fund is valued at 30 billion yuan, with the initial 8 billion yuan already subscribed. Investors will include China Construction Bank, China Everbright Bank, Citibank China, Shanghai AJ Trust and Avic Trust.

The fund will be used to support the mixed ownership reform and capitalization of Chengtong Group-backed companies, as well as ongoing mixed ownership reform among State-owned enterprises in key industries and areas.

The duration of the fund is set at nine years. Five years have been designated as the investment period, and two years as the payback period. The fund can be extended for two years upon the consensus of all partners.

Guan Wu, chairman of the newly founded equity investment company, said that it will explore new ways of managing State-owned capital, which in the long run will help to optimize the State-owned sector.

"Private capital has been introduced into the company to take part in SOE reform. In this sense, the market will play a key role in SOE reform and inject more vitality into SOEs," he said.

Zhou Qinye, an outside director of China Chengtong Group, said that equity investment will attract more private capital to contribute to SOE reform, helping SOEs to address overcapacity more efficiently, reduce debt, and set up modern operating models.

"As China transforms from high-speed economic growth to one focused on quality, supply-side reform has been the buzzword for the past few years and will still be in the years to come. More specifically, it means the main missions will be to reduce overcapacity and overstocking, to push deleveraging, to lower costs, and to address the inadequacies in economic development. These are the major reasons for setting up the new equity fund," he said.

In September 2015, the State Council released a guideline covering SOE's mixed ownership reform. By the end of last year, the State-owned Assets Supervision and Administration Commission had instructed a total of 50 SOEs to carry out their mixed ownership plans.

According to Shanghai-based market information provider Wind Info, a total of 32 listed SOEs had suspended trading by mid October due to major asset restructuring, indicating possible mixed ownership reforms.