Management buyouts of state assets and equities in large
state-owned enterprises (SOEs) have been banned, according to a new
regulation released Thursday. But the long-expected rule does allow
such transactions at small and medium-sized SOEs as long as they
follow a set of standards.
The criteria on such sales were clarified by authorities for the
first time in the regulation, jointly released by the State-owned
Assets Supervision and Administration Commission (SASAC) and the
Ministry of Finance.
They include setting qualifications for management buyers of
small and mid-sized firms, procedures and venues for dealings and
relevant financing channels and information disclosure
procedures.
The regulation is designed to ensure transparency and fairness
in management purchases of state-owned property, a popular practice
in SOE reforms of recent years but one that has been accompanied by
self-dealing, illegal financing and erosion in the interests of the
state and ordinary employees due to legal loopholes.
Li Rongrong, minister of the SASAC, said yesterday such
irregularities and unstable factors have to be dealt with
efficiently and that management acquisitions of state assets and
equities must be done in an orderly way.
Potential management buyers of smaller SOEs cannot participate
in plans to sell assets or in relevant audits, asset evaluations
and pricing matters; they should compete on equal terms with other
potential buyers in designated assets and equities markets.
Those found liable for the declining performance of their
enterprises or engaged in fraud cannot take part in bidding.
Li said the time is not ripe for big SOEs to sell assets and
equities to management or to make them controllers, citing a lack
of effective asset pricing systems and relevant financing tools for
management buyers.
According to the SASAC, by the end of 2003 there were around
150,000 SOEs, 98 percent of which were small and medium-sized.
Li also said the commission is working on regulations on the
adoption of stock options in SOEs, which will be encouraged on an
experimental basis.
"Now that the economy is changing and a diversified equity
structure encouraged, it is essential to hasten the pace of
legislation to bring clearer standards for SOE reform and ensure
fairness," said Li Zhaoxi, deputy director of the Enterprise
Research Institute of the State Council's Development and Research
Center.
He told China Daily yesterday that there is still a
long way to go to a mature market economy, so presently the
authorities still have a lot of reform issues to address in
combining overseas expertise with Chinese characteristics.
The management purchase of the SOE assets and equities, for
example, still needs further study in pricing and financing tools
to give management more incentives while curbing
irregularities.
It is similar to some extent to management buyout practices in
mature markets, in which management teams purchase outstanding
shares in their companies through specialized financing
arrangements.
Yet it would be impractical to blindly copy foreign models
because of the immaturity of the domestic capital market and other
differences, he said.
(China Daily April 15, 2005)