Xugong Remarried China Weapons Group

The restructuring of Xugong, which has attracted much attention, has finally come to a conclusion after many twists and turns.

In May 27th, through the strong pull of the Jiangsu provincial government, Xugong Group finally found a new "husband's family" - China North Industries Group Corporation (hereinafter referred to as weapons group).

Since the introduction of the US private equity investment fund Carlyle in 2005, it wants to start the foreign capital holding acquisition of state-owned heavy industry enterprises, but has been caught in the mire of approval. Even the dispute of "selling state-owned assets" has attracted the attention. Xuzhou's construction machinery Limited by Share Ltd (000425.SZ, hereinafter referred to as Xugong machinery) has become the star company of the capital market.

After more than three years of "bitter love" failed, Carlyle finally abandoned the stake in Xugong in 2008.

But its parent company Xugong Group did not stop looking for the next strategic investor.

The single state-owned system and rigid incentive mechanism have been increasingly restricting the development of Xugong.

According to the strategic cooperation framework agreement signed by Jiangsu provincial government and Ordnance Group in Nanjing, the weapons group will carry out strategic reorganization with Xugong Group and aim at strengthening and expanding Xugong Group. The weapons group will invest 15 billion yuan in Jiangsu to build a R & D production base for heavy vehicles and construction machinery, a high-tech photoelectric information R & D production base and a fine chemical research and development production base.

Xugong Group's controlling shareholder is the Xuzhou municipal SASAC, the Jiangsu provincial government is leapfrog operation.

The reorganization news made Xugong machinery's share price plummeted. The investors who hoped for the reorganization of Xugong machinery were obviously not optimistic about the restructuring of their parent company, and they had voted with their feet.

Up to now, key information such as restructuring mode, timetable, trading price and asset reorganization plan is still in the fog. It is much more important to observe the future influence of parent company reorganization on the performance or prospect of listed companies.

Top management

In July 23, 2008, Carlyle and Xugong Group, which suffered from the examination and approval of the purchase, finally issued a joint statement. "The two sides decided not to cooperate on the joint venture, and Xugong will be reorganized independently."

"Since then, many investors have begun to contact Xugong Group, and there are also industrial investors who have financial investors, but they are all domestic enterprises."

A source close to Xugong machinery senior told this reporter, for example, CITIC Group and weapons group had contact.

In early June 2009, the main leaders of the ordnance group visited Xugong Group.

In August 19th of the same year, a machine engineering machinery company affiliated to Inner Mongolia one machine group of the Ordnance Group signed 22 MD23 bulldozers foreign trade contracts with Xugong Group, with a contract value of 14 million 630 thousand yuan. This is also the largest single sales contract signed by the company.

"The relationship between the senior weapons group and the Jiangsu government has been relatively good."

The above-mentioned people familiar with the matter said that the reorganization of Xugong Group of the weapons group was strongly supported by the leadership of the Jiangsu provincial Party committee. "Therefore, the weapons group did not pass the Xuzhou SASAC, but directly linked the Xugong Group through the upper class relationship."

It is understood that Hu Wenming, the party secretary of the arms group, was deeply rooted in Jiangsu, Hu graduated from Nanjing University of Aeronautics & Astronautics, and worked in Jiangsu for many years until he left in 2001.

The restructuring intention has been set. The foregoing insider disclosed that the weapons group held the Xugong Group or held a listed company Xugong, a listed company under the Xugong Group. There were still differences before. "But now it has been preliminarily determined that the weapons group will hold the Xugong machinery through holding Xugong Group."

The reality is that the weapons group will buy more than 50% of Xugong Group's stock from the Xuzhou SASAC, and the paction price is still unknown.

Xugong Group has 100% Xugong Group Construction Machinery Co., Ltd. (hereinafter referred to as construction machinery), and construction machinery company holds 58.47% Xugong machinery shares.

"The new 15 billion yuan investment promised to Jiangsu by the Ordnance Group is not the consideration of the arms group's acquisition to Xugong Group, and the investment area is not limited to Xuzhou, but it does not exclude that part of the scale will be used for future investment in Xugong Group."

The person familiar with the matter explained.

A member of the China Machinery Industry Federation, which has close ties with Xugong Group, revealed to this reporter that at present, Xuzhou SASAC is rather helpless about the reorganization of Xugong Group.

"They do not have much initiative in the reorganization, but the restructuring will not be pferred without compensation."

Equity incentive

Equity incentive has always been a weakness of Xugong machinery, and has become the core issue of Xugong's repeated joint venture negotiations.

In the reorganization of Xugong Group of the weapon group, equity incentive has been mentioned again.

"At present, the equity incentive plan is still being discussed, so both sides are more cautious about restructuring matters."

The aforementioned Machinery Federation told this reporter that in the process of negotiations, the implementation of equity incentive for management is one of the necessary conditions proposed by Xugong Group.

In January 26, 2010, the announcement issued by Xugong machinery clearly mentioned that "the top executives of the company and weapons group have fully communicated on Xugong Group's reorganization, market development, complementary advantages, equity cooperation and equity incentive."

In the last long period of "love affair" between Xugong Group and Carlyle, the management of Xugong Group has always been interested in equity incentive.

However, because Carlyle's involvement in the pfer of state-owned enterprises' controlling rights has already been subject to strong regulatory approvals and domestic public opinion pressure, Carlyle has not accepted the stock or option incentive plan.

However, at that time, Carlyle had revealed to reporters that if a joint venture was established, management salaries, bonuses and promotions would be arranged according to international practice.

Xugong Group Chairman Wang Minceng said to the outside world that Xugong's management did not have Xugong's shares, basically taking "dead wages", which made Xugong lack enough innovation power.

Public information shows that Xugong Group is controlled by Xuzhou SASAC 100%, while Xugong Group's shareholding ratio is only 0.008%.

The shareholding ratio of Sany (600031.SH) management and related natural persons in the same equipment manufacturing industry is 63.638%, while the total shareholding ratio of ZOOMLION (000157.SZ) management is 10.704%.

Sany and Xugong machinery scale, total assets are about 15 billion yuan, while Sany in the first quarter of 2010 net profit reached 932 million yuan, Xugong machinery only 506 million yuan.

"Such a low management stake in Xugong has, to a certain extent, affected the competitiveness of the company."

Xu Xingyue, a securities analyst at the Great Wall, said in an interview with this reporter, "the company's performance has not been completely released, and the realization of equity incentive will help improve performance."

At the Xugong Group's development strategy meeting held in 2009, Wang Min said that the target of Xugong Group was to achieve operating income of over 100 billion yuan in 2015, 8 billion yuan in profits and taxes, and entered the top five in the world construction machinery industry.

Xugong Group, a manager of the Xugong Group, told the correspondents that Xugong Group is necessary to implement these future development strategies and introduce strategic investors. "We must restructure, improve shareholder structure and optimize the incentive mechanism, otherwise there will be no way out."

Xugong future

"In fact, the reorganization of Xugong Group of weapons group is a typical central enterprise restructuring local state-owned enterprises."

A Xuzhou economic and Trade Commission personage accepts this reporter's interview.

Central enterprises restructuring local enterprises generally will increase local investment as the condition.

"At present, the weapons group's investment in Jiangsu is 15 billion yuan, of which Xuzhou is still unknown."

The government said, "however, relying on weapons group, Xugong will have more advantages in terms of capital and policies, which will help Xugong Group to move towards the world faster."

A well-known analyst in the machinery industry said that restructuring and restructuring will bring efficiency to Xugong. However, in the short term, Xugong's performance is limited.

Public information shows that the weapons industry group is China's largest conventional weapons manufacturer.

But the weapons group is focusing on building heavy equipment and vehicles, special chemical and petrochemical industries, optoelectronic devices and new energy and new materials.

In 2009, the weapons group realized its main business income of 161 billion 800 million yuan, an increase of 11.6% over the same period, with a profit of 5 billion 382 million yuan, an increase of 15.1% over the same period last year.

Despite the good performance, in the view of the above analysts, the weapon group has a single military user and a high degree of dependence on its customers. It must develop civilian products. "But the weapons group is not very mature in the civilian product market development and scale operation, so it needs to be bought."

At present, the construction machinery assets of the Ordnance Group are mainly concentrated in Inner Mongolia northern Heavy Industry Group Co., Ltd. the total assets of the company are 7 billion 90 million yuan.

In 2009, Inner Mongolia northern heavy industry achieved an overall revenue of 9 billion 20 million yuan, an increase of 23.9% over the previous year. Among them, the three core businesses of military products, special steel and extension products, mining vehicles and construction machinery accounted for 5 billion 800 million yuan, accounting for 72% of the company's main business income.

"If the assets of Inner Mongolia northern heavy industry are injected into Xugong Group, the performance of Xugong will not be improved.

Because their market share is small. "

The analyst said.

In addition to construction machinery, the intersection of Ordnance Group and Xugong Group is also a piece of military products.

"But Xugong Group should insist on the positioning of its engineering machinery head, its professional technology and military assets of special vehicles, special vehicle key parts and so on, and may give weapons group in the future."

In addition, the international market has always been the development space that Xugong Group dreamed for. Carlyle also introduced Carlyle to explore the international market.

According to the 2009 annual report of Xugong machinery, in 2009, the main business income of Xugong machinery in 2009 was 18 billion 296 million yuan, of which the export revenue was 1 billion 647 million yuan, accounting for 9.13% of the total revenue.

The analysts believe that "weapons group does have some overseas resources market, but foreign countries are more sensitive to the concept of Chinese military industry."

If Xugong enters the international marketing network as a military enterprise, it is estimated that the export will encounter some market resistance, which may have some adverse effects on the performance of Xugong Group.