Source: 21st Century Business Herald　 Author: Peng Xiaodong

The overseas and financial strategy of Jinggong Group becomes clear.

On March 10th, the president of Jinggong Group, Jin Liangshun, told the journalist of 21st Century Business Herald that, Jinggong Group would cooperate with Dong Yin Development (Holdings) Limited-COAMC’s subsidiary in Hong Kong, and jointly develop Jinggong’s overseas and financial business on the platform of Jinggong (Hong Kong) Company Limited.

“This is an opportunity to integrate industrial capital with financial capital”. Mr. Jin believes that it will expand the financing channel of Jinggong group. Jinggong (Hong Kong) will be the platform of overseas business for the three listed companies of Jinggong group, namely Jinggong Technology, Jinggong Steel and Kuaijishan.

According to the general manager of Dong Yin Development, Mr. Yang Jianmin, Jinggong (Hong Kong) will set up an asset management company at Qianhai, Shenzhen, which will support the development of overseas business of the three listed companies.

The new asset management company will explore the model of “PE + Listco” to achieve resources integration and asset management of the three listed companies.

“PE + Listco” Model

COAMC is one of the top four AMCs in China, and its wholly-owned subsidiary, Dong Yin Development focuses on investment and financing, asset management and NPLs disposal. In its cooperation with Jinggong group, Dong Yin is responsible for providing financial services.

Jinggong (Hong Kong) will set up an asset management company in Shenzhen and its business model “PE + Listco” is under strengthened regulation of CSRC.

“PE + Listco” model refers to the model under which a PE firm and a listed company build a M&A platform by setting up a company (or a M&A fund), then the PE firm looks for M&A target according to the strategy of the listed company and hold the target through M&A.

As far as Jinggong group is concerned, the group now has three listed companies, namely Jinggong Technology, Jinggong Steel and Kuaijishan, which focuses respectively equipment manufacturing, steel structure and engineering, Shaoxing wine and general aviation. Mr. Yang Jianmin told the reporter of 21st Century Business Herald that Jinggong (Hong Kong) would help Jinggong group to upgrade relevant industries and develop overseas business.

Accounting staff members working in Jinggong (Hong Kong) pointed out that the involvement of PE in the M&A of listed companies can benefit both the PE and the company by bringing industrial resources, picking the target companies of good quality based on the PE’s industrial background and expertise in accounting and legal affairs and assisting the asset consolidation.

Despite its advantages in M&A and market capitalization management, the “PE + Listed Company” model has its drawbacks concerning information disclosure such as manipulating the market and insider trading, which has drawn the attention of relative authorities.

Recently, the spokesperson of CSRC said that CSRC would impose stricter requirements on the information disclosure of “PE + Listed Company” model in the following aspects including the transfer of interests, the signing of market capitalization management agreements and related party transactions so as to crack down illegal behaviors and foul play such as market manipulation and insider trading.

Mr. Yang Jianmin said that the government was supportive to legal M&A despite the necessity of avoiding market manipulation, insider trading and unlawful profit-transferring.

Actually, CSRC released the Regulation on Major Asset Restructuring of Listed Companies last October, offering support to the involvement of legally established M&A funds, equity investment funds, venture capital funds, and industrial investment funds in the M&A and restructuring of listed companies.

Yang Jianmin said that Jinggong (Hong Kong) would launch its first round of fund-raising later this year with focuses on health care, environment protection and so on.

Stepping in agriculture and general aviation

Apart from the three listed companies mentioned above, Jinggong Group used to be the largest shareholder of the Light Textile City Group (600790.SH). In 2002, Jinggong Group acquired Rainbow Industry and became the largest shareholder of Light Textile City Group by holding 55% of its shares.

However, Jinggong group transferred part of its shares to a state-capitalized market development company and took a back seat to the second largest shareholder, after which its shares were reduced twice and when this article went to press, Jinggong Group held 4.35% of Light Textile City Group shares through its wholly-owned subsidiary Zhejiang Jinggong Holding Co., Ltd.

Jin Liangshun said that Jinggong Group started breeding its businesses in five sectors such as agriculture and general aviation after giving up the controlling shares of Light Textile City. Jinggong (Hong Kong) is the platform for its agriculture and general aviation businesses.

Jin Liangshun, starting his career in the manufacturing industry, told the 21st Century reporters that his collaboration with COAMC was due to their shared interest in agriculture. He said that the combination of industrial capital and financial capital would offer strong support to the overseas agricultural projects.

This is also true for the capital and technology-intensive general aviation industry. As we learned, Jinggong Group restructured Shanghai Eyas Technology Company at the end of 2004 as an indirect way to tap on the general aviation manufacturing and later established a joint venture with an American company specializing in the assembly and sales of light helicopters.

In 2007, Jinggong adjusted its strategy in general aviation by shifting from aircraft manufacturing to service providing. “Aviation service business can boost out manufacturing sector.” Jin Liangshun was quoted as saying.

China’s aviation industry is much smaller than that in developed countries like the U.S. Currently, there are 224,000 general aviation aircraft in the U.S., accounting for 58% of the world’s total, supported by more than 20,000 general aviation airports and used by over 610,000 pilots. The general aviation industry has created 1.26 million jobs and generated 1% of the country’s GDP. However, China, a country with 1/5 of the world’s population, only hosts 1/400 of the world’s general aviation aircraft, according to Yu Feng, the general manager of China Aviation Helicopter Co., Ltd.

Jin Liangshun pointed out that China’s general aviation industry would step onto a path of industrial integration which was COAMC’s strong suit. Yang Jianmin confirmed that Jinggong (Hong Kong) would take on this business.