Flagship Aviation Company Takes up Historic IPO Mission

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Last updated at: (Beijing Time) Tuesday, June 25, 2002

Flagship Aviation Company Takes up Historic IPO Mission

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China Aviation Industry Corp II (AVIC II), one of the country's two State-owned flagship aviation companies, is expected to see a historical public listing on the Hong Kong stock market in the near future which will help further strengthen its competitive business arms.

The move would make it a pioneer of the reform of China's State-owned business conglomerates that aims to build up companies with world-class competitiveness.

The listing is particularly significant as it will be the first public company among the country's 10 most sensitive and largest military business conglomerates under the direct control of the State Commission of Science Technology and Industry for National Defence (SCSTIND), the top governmental body in charge of the country's national defence industry.

All key assets to be listed

The company, known as China's Boeing, said the planned wholesale listing would include all the major business units it controls in the country, with the exception of some core units for military operations that are not suitable for public listing.

Under the much anticipated plan, a new shareholding company will be established within two months that will include all the key assets scheduled to be listed on the market.

The company said it has already received the green light for the listing from the State Council, the country's cabinet. This was reconfirmed by earlier reports that said the reform and flotation of the country's large military companies are top concerns of the central government this year.

"We are now busy with the inner reshuffling within our company, hoping to meet the regulatory standards of the Hong Kong authorities," said a senior official with the company's Development Research Department.

The official, who is also one of the chief officials responsible for the preparatory work for the listing, told Business Weekly that the core units that will be listed include mainly all of its business arms - civil aviation products, exported aviation products, outsourcing products and mini-auto products.

And the funds raised will be used to fund these business arms. According to the official, the company's strong comparative advantages and growth potential in these three arms make it highly competitive in both domestic and overseas markets.

But the exact amount of funds the company plans to raise from the listing is still not available as no amount will be finalized until the internal reshuffling is completed.

The company already has four sub-member companies listed on China's A-share markets, designated for domestic investors only.

Pioneer of reform of state-owned military enterprises

The AVIC II listing is believed to be one of the largest SOE overseas listing campaigns this year as the country speeds up efforts to reform its low efficient and loss-making State-owned companies.

Experts believe that the funs the company plans to raise will be a huge sum, given the large scale of the company.

The massive conglomerate employs 210,000 people and consists of 81 member companies with aggregate assets of 31.5 billion yuan (US$3.8 billion).

Of the 81 member companies, there are 56 manufacturers, three research institutes and 23 other enterprises and institutes, some of which are the country's key aviation and mini-auto companies.

And its wide business scope covers both military and civil products, including helicopters, transports, trainers, general aircraft, UAVs, related engines and airborne equipment, mini vans and engines, motorcycles and industrial gas turbines.

As one of the country's backbone aviation companies, AVIC II was founded in the late 1990s following the split-up of the former China Aviation Industry Corp, and is now under the direct control of the central government.

"We are very lucky to be selected as the pioneer of the reform of the country's largest military companies, and we hope to set a model for those who come after us," said the official.

Although the company has outlined a rough timetable for the listing, the official said details have not been finalized.

"We hope there will be a listing as soon as possible, but the final timing will be based on the performance of the world markets and our preparations," he said.

Remaining assets to follow

The parts of the conglomerate that will not be listed - mainly military operations units - will continue to be strong market competitors in the military and civil markets, and thanks to that two strong market players will emerge from the listing, one for civil products and the other for military operations.

"And the assets of the parent could flow to the listed company in the future," said the official.

Talking about the venue selected for the strategic listing, the official said that a listing in Hong Kong market would make the company a competitive player in the global market.

"It is in our interests as we are striving to become a world-class company highlighted by good corporate governance and strong comparative advantages."

The company also told Business Weekly that it will ink deals with its intermediaries this week, including rating campaigns and law firms, to initiate the final steps of the listing.

Different from its rival China Aviation Industry Corp I, AVIC II has fewer military businesses, putting it in a better position for the milestone reform effort.

Experts believe that the remaining nine large military companies are due to follow AVIC II's example in due time as the central government takes moves to reform the loss-making large military operations in the wake of China's WTO accession.

Liu Jibin, minister of the State Commission of Science, Technology and Industry for National Defence, said that a strategic reshuffling of the State-owned military enterprises would be a major step forward along the reform of China's military sectors.

The central government reportedly has already decided to allocate 80 billion yuan (US$9.6 billion) to clean up the bad loans of large SOEs, including the 10 largest military companies, as a way to shore up the reform, which has been a major government headache for years.

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