Stake sale plan a mixed-ownership milestone: experts
China's mixed-ownership reform in State-owned enterprises (SOEs) has made steady progress in recent months, illustrated by China Unicom's plan for a 78 billion yuan ($11.69 billion) stake sale involving high-profile investors including Tencent, Baidu and Alibaba.
However, obstacles such as private investors' wariness about participating in the overhaul and SOE executives' unwillingness to take risks may hinder the future progress of such reforms, experts warned.
Domestic mobile network provider China Unicom on Monday unveiled its plan to introduce strategic investors to push forward mixed-ownership reform. Under the plan, nine investors - State-owned China Life, Tencent, Baidu, JD.com Inc, Alibaba, Suning, Kuang-Chi, Shenzhen Huaihai and Aegon-Industrial Fund - will collectively purchase a 29.07 percent stake in the country's second-largest telecom carrier at 6.83 yuan per share, according to filings the company sent to the Shanghai and Hong Kong stock exchanges on Monday.
Also, the carrier will sell 1.9 billion shares, or 6.11 percent of the company's total shares, to China Structural Reform Fund Corp. Core employees will also buy 848 million shares at 3.79 yuan per share, said the filings.
Feng Liguo, an expert at the Beijing-based China Enterprises Confederation, hailed the China Unicom shakeup as a milestone in the SOE reform agenda.
"China Unicom is leading the centrally administered SOEs' mixed-ownership reform. [The plan] is the largest deal in scale and also the boldest in terms of reducing the stake held by the SOE itself," Feng told the Global Times on Monday.
After the deal, China Unicom's shareholding will drop from more than 62 percent to 36.67 percent, but the group still remains the largest shareholder, according to the filings. The remaining stake is significantly lower than the 50 percent "red line" most SOEs implement to retain State-owned characteristics, Li Jin, chief researcher with the China Enterprise Research Institute, told the Global Times Monday.
Liu Bing, chairman of Beijing-based consulting firm KCC Best, also spoke highly of the structure of the newly introduced strategic investment. "It provides a lesson that other SOEs can learn from," Liu told the Global Times on Monday.
"Almost all the investors' portfolios are closely related to China Unicom's main business, and they can produce a synergetic effect through tapping into their joint advantages or complement Unicom's industry chain," Liu said, pointing out that diversifying the carrier's shareholding structure would offer new insights in corporate governance and improve its operating efficiency.
Roadblocks
China Unicom was among the first batch of SOEs picked by the National Development and Reform Commission (NDRC), the country's economic planner, last year for a pilot program in mixed-ownership reform. Other selected pioneers include Air China, Eastern Air Logistics Co and COFCO State-owned Capital Investment Company, Xinhua reported in May.
Meanwhile, the central government has also unveiled an array of policies on accelerating the mixed-ownership reform agenda.
The second batch of SOEs that applied for the pilot mixed-ownership reform were approved and the third batch is now being screened by the NDRC, said another Xinhua report.
"Although the top-level design has been developed, progress has been slow in SOEs' execution of the reform scheme," Feng said, attributing the situation to SOE executives' desire to balance costs and benefits.
"Advancing a reform involves great risks but there is no guarantee on the return… What if the reform fails to achieve the desired effect or even leads to a drop in revenue?" Feng asked.
Li also noted that if a great amount of private capital is injected into SOEs, then the SOE managers may also be blamed for "selling State assets."
It is likely that only under extreme scenarios such as heavy profit losses that SOEs will take the risk and pursue a reform plan, experts added. In China Unicom's case, the carrier suffered a 96 percent profit plunge last year, recording its worst performance since getting listed in Shanghai in 2002.
Another factor is that attracting private capital to invest in SOEs may prove difficult, Li said.
"China Unicom is one of the country's three main carriers, enabling it to lure private investors who wish to share in the monopoly," Li explained, adding that private investors would be less eager to invest in SOEs with less dominant market positions or that are burdened with overcapacity.
