Growth firms enter equity markets by backdoor listings

Forty-two State-owned holding companies listed on the Shenzhen Stock Exchange suspended trading due to major issues in the first half of 2016, signaling that China is stepping up SOE reform.

According to the exchange, 12 State-owned holding companies revealed restructuring plans with funds totaling 89.5 billion yuan ($13.4 billion), and 28 announced refinancing plans totaling 72 billion yuan.

"State-owned enterprises are positively seeking ways in the capital market to address the challenges caused by the slowing economy, such as integration and mixed ownership reform," said Liu Jipeng, dean of capital finance institute at the China University of Political Science and Law.

For instance, Shenzhen Chiwan Petroleum Supply Base Co Ltd merged with Shenzhen New Nanshan Holding Co Ltd through a share swap in July, thus improving Chiwan's financing capabilities.

Liu said mixed ownership reform has been carried out in many provinces and cities and private companies are participating in it. For example, internet giant Alibaba Group Holding Ltd has purchased stakes in State-owned New China Life Insurance Co Ltd.

Some listed State-owned holding companies also decided to become shell companies for unlisted growth companies, thus enabling the acquiring firm to get a backdoor listing on the A-share market. For instance, China Calxon Group Co Ltd was acquired by Guangzhou Evergrande Group, a national leader in real estate.

Other listed State-owned companies that have announced they want to be acquired include Xinjiang Tianshan Wool Tex Stock Co Ltd, Guangxi Hechi Chemical Co Ltd and Zhejiang Qianjiang Motorcycle Co Ltd.

Liu said China's State-owned enterprise reform still has made slow progress on senior management team stock option incentive plans and employee stock ownership plans.