Two critical steps in liquidizing state-owned assets

Public-private partnerships (PPPs) remained a popular funding model in 2016, and central enterprises, especially those with a construction licence, captured the spotlight in the PPP market by acting as the investor as well as the general contractor. In the meantime, however, a thorny problem is looming – as more PPP projects start to break ground, massive financing and investments are sending debt-to-asset ratios at central enterprises to hefty levels that approach the warning lines set by the State-owned Assets Supervision and Administration Commission of the State Council (SASAC).

So how can central enterprises secure a project’s construction contract through investment without making its financial report look bad? Some central enterprises join hands with financial investors to bid for the project through a consortium, within which the central enterprise would be responsible for building the project and the financial investors
would be responsible for raising money for the construction.

Some enterprises choose to take action after the bidding result is announced. After they are awarded the project, they seek to fund it by selling outstanding shares, issuing new shares, transferring their own shares, or launching asset securitization programmes. The authors worked on an expressway equity transfer project worth more than RMB10 billion (US$1.45 billion), in which a central enterprise adopted the latter approach. The transaction also touched upon two critical steps of the sale of state-owned stake – appraisal and listing.

Wang Jihong is a partner and Miao Juan is an associate at the Beijing office of Zhong Lun Law Firm