China Inc. goes private — one mediocre piece at a time


Beer, retailing, food and beverages. There are stranger combinations but this one hadn’t been working for Snow Beer brewer China Resources Enterprise Ltd., whose share price had limped along as investors fretted about what it would take to turn around the performance of its ailing supermarkets.

That was until 52% shareholder China Resources (Holdings) Co. Ltd. on April 21 agreed to buy back its non-brewing assets for HK$28 billion ($3.6 billion) and to purchase up to 10% of its capital, sending China Resources Enterprise’s shares up 57%.

The deal presented a new twist on the reforms planned for China’s sprawling state-owned enterprises that are exercising investors and advisers, and have helped push Chinese stock indices to seven-year highs. Privatizations via initial public offerings or share placements will play a part but they will be among an array of tools that the state will use to improve its companies’ performance.

“There were strategic steps that China Resources needed to take to turn those businesses around, including e-commerce investment, but it wasn’t appropriate to do that within a listed company,” a source said of the China Resources Enterprise deal. “Market reality was the driver of the deal but the themes – unlocking value, making the structure simpler and more transparent- tell a similar story to other SOE reforms.”

China has been tweaking the structures of its state-owned enterprises for about 30 years, roughly halving their number from about 300,000 in 1994, according to KPMG LLP, to an estimated 155,000 now.