Yuan Klan: Thoughts on Optimizing the Organizational Structure of China's Cement Industry

Release time:

Jul 08,2014

The "Lahau Merger" gives us three revelations: The "Lahau Merger" is a deal that is in line with the general trend and background of global economic development. In the process of economic globalization, any enterprise must face global market competition. Under the background of limited market increment and intensified industry competition, M & A has become the preferred choice for enterprises to expand their own scale and weaken their competitors. Only those enterprises that continue to create new market demand, business model and continue to climb to the high end of the value chain can finally win the competition. The data show that this year, the global scope, especially in Europe and the United States large-scale mergers and acquisitions activities.

The "Lahau Merger" gives us three inspirations:

Revelation 1: "Lahao merger" is in line with the global economic development trend, the background of the transaction reached. In the process of economic globalization, any enterprise must face global market competition. Under the background of limited market increment and intensified industry competition, M & A has become the preferred choice for enterprises to expand their own scale and weaken their competitors. Only those enterprises that continue to create new market demand, business model and continue to climb to the high end of the value chain can finally win the competition.

According to the data, there have been frequent mergers and acquisitions in the world, especially in Europe and the United States, with more than 8000 mergers and acquisitions announced worldwide, with a total amount of about US $1.5 trillion, a new high since 2007, and large-scale transactions have been frequent, with 23 mergers and acquisitions with a transaction scale higher than US $10 billion. Foreign media generally believe that the first global M & A boom after the financial crisis has come, which is a major trend. There are also views that the world economy has entered a period of benign recovery. The increase in enthusiasm for mergers and acquisitions is essentially a positive response to the accelerated recovery of the European and American economies, and it is also a period of accelerated integration of the international industrial structure. From the data, the industrial integration of the network, pharmaceutical, electronic information and other industries is more prominent, and the quantity and amount are much higher than before.

Revelation 2: To enhance competitiveness for the purpose of mutual benefit and win-win. In the face of China's cement industry to improve the level of technology and equipment and the rapid rise of enterprise strength, Lahao has a sense of crisis. More than half of their assets are in emerging economies. With the slowdown in the development of emerging economies, the gradual recovery of European and American economies, and the return of capital to developed countries, they feel some pressure to consolidate their advantages in Europe and the international cement market, as well as their own survival and development needs, they have chosen to combine strong forces and complement each other, improve efficiency through asset integration, effectively reduce risks and enhance competitiveness.

China's cement enterprises from the current point of view of the survival problem is not big, the industry profit level is higher than other industrial industries, but the development encountered problems, the performance of overcapacity contradictions more and more prominent. The advanced capacity utilization rate cannot be effectively utilized, which has swallowed the reasonable returns brought by the industry through technological progress. After the backward production capacity driven by the policy exits the market, it is possible to optimize the industrial organization structure through corporate mergers and reorganizations. Realize the survival of the fittest, truly play the role of market competition mechanism, and eliminate backward production capacity with unreasonable layout and low efficiency. However, if the new production capacity cannot be effectively controlled, the reorganization will not form the benefits of integration for the enterprise, which will affect the process of reorganization. At present, the central government is determined to control the new cement production capacity. Guo Fa [2013] No. 41 put forward clear requirements and made work arrangements. However, some local governments do not have a good understanding and believe that the cement industry has not yet suffered large-scale losses., Some enterprises are still very good, indicating that there is no excess cement production capacity in the region. In particular, after the power of examination and approval of cement projects has been delegated to the provincial government, there are signs of a new round of new cement projects in many areas, such as Inner Mongolia, Heilongjiang and Yunnan.

When we say that it is strictly forbidden to add new production capacity, we mean that it cannot be added on the basis of 2013. But some local governments can always find reasons to give the green light to new projects. Attracting investment is beneficial but not harmful to local governments. The Ministry of Industry and Information Technology is responsible for the work of resolving the contradiction of overcapacity in the cement industry, and feels that it has a great responsibility. It is working hard to strengthen the work, implement the policies and measures of the Guo Fa [2013] No. 41, organize and carry out the "Cement Industry Development Policy" Revision work, formulate the "Implementation Measures for Capacity Replacement in Some Industries with Serious Overcapacity", the differentiated electricity price policy, the adjustment of preferential tax policies for comprehensive utilization of resources, and the revision of cement standards are also being implemented. However, cement enterprises must have a clear understanding. It is an indisputable fact that China's cement industry has overcapacity as a whole. Although the central government is resolute in resolving the contradiction of overcapacity, we should no longer expect the central government to take the tough administrative and economic measures to clean up the market. The main contradiction in the development of the cement industry is no longer caused by the backward production capacity referred to in the past. The government should let the market play a decisive role, and strive to create an environment of fair competition through laws, regulations, and strengthening supervision and inspection. We should learn from Lahao and adjust our strategy as soon as possible in the face of this situation and consider it in the long run.

Merger and reorganization is an important way to change the mode of development, the merger and reorganization of China's cement industry, the need for breaking the situation of innovation, and then as before the big eat small, painting the land for the prison of the primary merger and acquisition method without breaking through, even if not breaking the situation of reorganization. The case of Lahao has given us a good enlightenment. Through the early layout of mergers and acquisitions and seizing the opportunity, the combination of strong and strong forces is a more advanced stage of corporate mergers and acquisitions. How to seek common development between large cement enterprise groups? In recent years, through industry self-regulation has had some effects, but it is not sustainable, we are also looking for cases of mergers and acquisitions that are willing to do so, focusing on mergers and acquisitions of enterprises with breaking characteristics in industries with severe overcapacity, and playing the role of coordination mechanisms between departments to help them coordinate and solve various problems encountered in mergers and acquisitions.

The third revelation of large enterprises: the trading mode of "merger of large enterprises in Lahao" is worth learning from. The key to our strong alliance lies in changing the way of thinking, speeding up the innovation of system and mechanism and capital operation, that is, how to improve the modern enterprise system, with the help of the power of the capital market, speed up the alliance between capital and promote the formation of an industrial pattern leading the healthy development of the industry.

Since the establishment of the Ministry of Industry and Information Technology in June 2008, our Industrial Policy Department has always promoted enterprise merger and reorganization as one of the most important tasks to promote industrial transformation and upgrading. In August 2010, the State Council issued the "Opinions of the State Council on Promoting Enterprise Merger and Reorganization" (Guo Fa [2010] 27) drafted by our organization, the document puts forward the main objectives and basic principles of promoting enterprise merger and reorganization, and puts forward requirements for the government to strengthen the guidance of enterprise merger and reorganization, improve management and service. In December of the same year, the State Council approved the establishment of a ministerial-level coordination mechanism for enterprise mergers and reorganizations led by the Ministry of Industry and Information Technology and participated by 12 departments including the Development and Reform Commission and the Ministry of Finance. The head of the group is the Minister of Industry and Information Technology, and the group office is located in the Industrial Policy Department of the Ministry., Our Industrial Organization Office is responsible for daily work.

Over the years, we have been actively promoting the merger and reorganization of enterprises, and the cement industry is the focus of our attention and promotion. In January 2013, we jointly issued the guidance on accelerating the merger and reorganization of enterprises in key industries (No. 16, 2013 of the Ministry of industry and information technology), which clearly put forward the development goals of merger and reorganization of key industries such as steel and cement. In August last year, Premier Li Keqiang instructed that "corporate mergers and reorganizations are related to structural adjustment and must have policy support". It also requires the Ministry of Industry and Information Technology to work with relevant departments to study policies and measures related to enterprise mergers and reorganizations. We immediately worked with the member units of the Inter-Ministerial Coordination Group. On March 7, 2014, the State Council issued the Opinions of the State Council on Further Optimizing the Market Environment for Enterprise Mergers and Reorganizations (Guo Fa [2014] No. 14, hereinafter referred to as the Opinions). The "Opinions" highlight the dominant position of enterprises in mergers and reorganizations, and attach importance to better playing the decisive role of the market. The government plays a role in strengthening industrial policy guidance and services, simplifying approval procedures, improving the market environment conducive to corporate mergers and reorganizations, eliminating market barriers, and improving policies and measures that are conducive to corporate mergers and reorganizations, such as finance, taxation, land, and employee placement.

At present, China's financial and capital markets for mergers and acquisitions support is not sufficient, there are financing difficulties, high financing costs, financing means is relatively single and other issues, for this reason, the "opinion" put forward: first, to optimize credit financing services. Guide commercial banks to actively and steadily carry out M & A loan business under the premise of risk control. Promote commercial banks to implement comprehensive credit to mergers and reorganizations and improve credit services for mergers and reorganizations. Second, we should give full play to the role of the capital market. Support qualified enterprises to raise funds through the issuance of stocks, short-term financing bills, medium-term notes, non-public directional debt financing instruments and other non-financial enterprise debt financing instruments, convertible bonds and other means. Eligible enterprises are allowed to issue preferred shares and directional convertible bonds as payment methods for mergers and reorganizations. The implementation of mergers and acquisitions of shares issued by listed companies, the abolition of the minimum number of issues, no longer mandatory performance commitments, by the company's independent decision-making. Reform the share pricing mechanism for mergers and reorganizations of listed companies. Mergers and reorganizations of non-listed companies do not implement a comprehensive tender offer system and allow the implementation of negotiated pricing of shares. This document has added a lot of investment and financing methods. In the previous stage, we and the Ministry of Finance jointly conducted some research on the establishment of M & A funds and other issues. In the next step, we will work with the People's Bank of China, the China Banking Regulatory Commission, and the China Securities Regulatory Commission. Do special research on solving corporate financing problems.

As an important part of the cost of merger and acquisition, the tax will affect the decision-making of merger and reorganization to a certain extent, and the heavy tax burden will even block the merger and reorganization of some enterprises. One of the biggest obstacles in taxation may be the income tax issue of the value-added part of the asset evaluation of mergers and acquisitions. Caishui [2009] No. 59 can adopt special tax treatment of income tax and enjoy deferred payment policies for mergers and reorganizations of enterprises that meet certain conditions. It can effectively reduce the current M & A costs and capital pressure of enterprises, but due to the harsh conditions, few companies can enjoy this good policy. At present, the Ministry of Finance and the State Administration of Taxation have made arrangements to study and revise the relevant conditions, and a result may be produced before the end of this year. In addition, the Ministry of Human Resources and Social Security is stepping up efforts to study the introduction of mergers and reorganization of enterprises to stabilize the reward policy. Other relevant departments also have specific tasks, and are actively working to promote the formation of some detailed rules and some operational specific policies.