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Central enterprises' M&A under tight control

By Xu Shenglan (chinadaily.com.cn)
Updated: 2008-07-24 16:48

Li Rongrong, chairman of the State-owned Assets Supervision and Administration Commission (SASAC), warned some central-administered enterprises of strong expansion impulse on July 22 and vowed to put their merger and acquisition (M&A) moves under tight control, the Shanghai-based China Business News reported.

At a meeting with leaders of central enterprises, Li said the government should impose severe restrictions on these group's M&A activities. Reconstruction deals not in line with core businesses, beyond the firm's own investment capacity or with excessive low returns will be prohibited.

Central enterprises are banned from investing in the finance, security, real estate and insurance sectors with bank loans, he added.

The SASAC head also said the nation will tighten central enterprises' investment scale. According to the investment plan at the beginning of this year, the fixed-asset investment scale of central enterprises will reach 2.2 trillion yuan this year, up 36.7 percent year-on-year. Investment of 38 key enterprises grew 16.9 percent year-on-year in the first half, while that of the other central enterprises surged 98.9 percent.

Given this situation, Li Rongrong said the investment scale of central enterprises must be restricted within their reasonable debt ratio. Proportion of their own funds should be no less than 40 percent of the total investment. In addition, unnecessary investment projects must be slashed to wipe out high-risk or unrelated projects.