How to dispose,
for whom to dispose
The four asset management companies adopt the following measures in
the bad assets disposal:
First of all, the asset management companies all choose auctions.
In November of last year, Xinda held its first auction in Shenzhen,
China, where the auction target was transacted for 7.076 million yuan.
At the end of May 2000, Huarong auctioned a loan security - real estate
located in the basement of the South Computer City in the South International
Business Mansion in Guangzhou, China. The property, with a book value
of more than 70 million yuan, was gained through price bidding by
a computer company for 55 million yuan.
The Great Wall Asset Management Company, however, applied an older
credit pattern - leasing - to its assets disposal. On June 15, 2000,
they held a signing ceremony for 15 leasing contracts in Dalian, China.
In particular, 12 private investors became the lessees and signed
agreements to pay a rent of 16 million yuan. Private capital have
become involved in the assets disposal.
Some foreign companies are currently searching for information, looking
for cooperation opportunities, among them is the GM corporation.
"Violation" for advance
 Xinda
Asset Management Company Investment Banking Department Manager Chen
Xiaozhou said to a journalist, half-jokingly, "Now I am committing
a 'violation' almost every day. But if not so, nothing probably would
be done."
For example, one of the capital sources for an asset management company
is the bond guaranteed and issued by State finances. However, the
Law of Guarantee stipulates that the government authorities are not
allowed to be a guarantee for any enterprise; another example, the
Law of Corporation, stipulates that the stock held by an enterprise
initiator may not be sold. This clause alone will probably deter an
asset management company from liquidating the bad assets that have
been changed into stocks.
Various taxes imposed according to the policy give most asset management
companies a headache. A report submitted by Great Wall to the State
Council shows that the addition of various charging fees sometimes
even exceeds the liquidation price of the bad assets. According to
calculations, the Great Wall Company needs to pay interest of 7.781
billion yuan each year, and the cost of the interest accumulated for
10 years will reach more than 20% of the total assets of the company,
plus the direct cost accumulated, the addition of the two items will
exceed 30%. Currently, these four assets management companies are
all expecting the tax to be cut.
Because the assets are bad, losses are inevitable when they are disposed
of. The problem is how much shrinkage is acceptable? The asset management
companies worry if the government fails to give a discount margin
for calculation. The underlying problem is no matter what discount
rates are used for liquidation, they will encounter the criticism
of "state-owned assets flight". However, if nobody dare or is willing
to liquidate bad assets, asset management companies will become warehouses
for storing bad assets.
As for these problems, the criticism from different companies is very
strong. The Great Wall Asset Management Company Department Manager
Zhou Chongsheng said that according to State rules and regulations,
asset management companies should have special legal person status
- they need special rules and regulations to secure their right for
assets disposal and profits, to make them regard assets liquidation
as their ultimate goals, and to have the right to sell debts and stocks
controlled.
Huarong President Yang Kaisheng stresses that under the circumstance
that debts cannot be compensated, asset management companies should
be granted the right to take over the enterprises directly. In "changing
debt into stock", asset management companies can hand over their management
rights under certain conditions, but must enjoy revenue priority -
preferential stock. These problems need to be confirmed by law and
policy.
So far, the four asset management companies have all set up their
own asset appraisal and review committees, assets disposal committees
and assets accounting review committees, so as to make their assets
disposals fair and just, through separation of asset pricing right
and disposal right, and referendum. However, the practice of assets
disposal being given to an asset management company itself lacks publicity
and control, which is doubted by experts and academics.
According to the relevant stipulations, the State Economic and Trade
Commission, the Ministry of Finance, the People's Bank of China and
the Monetary Work Commission are all responsible for the supervision
of asset management companies, but no detailed supervision method
has yet been worked out.
Caijing magazine learned that a supervision committee formed by the
Ministry of Finance and other authorities had sent its representatives
to the asset management companies. The Special Rules and Regulations
for an Asset Management Company drafted by the People's Bank of China
has also been submitted to the State Council, which relates to an
asset management company's nature, right and operation mode. It is
revealed that the relevant law and policy are expected to appear before
the end of the year. Maybe until then, the asset management companies
will not commerce their asset disposals.
System breakthrough is the way
Many people hope that after entering enterprises and working at their
bad assets, management companies will enable the enterprises to develop
in the direction of diversity and enable their internal systems to
change greatly, thus solving the problem for China's state-owned enterprises
to escape from their difficulties. But in reality, if the asset management
companies can enter the enterprises, how they enter the entities,
is still a problem.
Beijing Cement Plant's "changing debt into stock" process reveals
the series of challenges posed by a state-owned enterprise's traditional
system and concept.
On September 2, 1999, the Xinda Asset Management Company and the mother
company of Beijing Cement Plant - Beijing Building Materials Group
- signed an agreement on the framework of "changing debt into stock".
0.688 billion yuan of the debts would be changed into Beijing Cement
Plant stock controlled by Xinda. Next was the asset appraisal and
reform. Until June of this year, the registered capital of the newly
founded Beijing Cement Co., Ltd. was 0.963 billion yuan, of which
Xinda owned 71.4%, being the largest stockholder; Beijing Building
Materials Group owned 28.6%. As the largest stockholder, Xinda has
4 seats on the 7-member board of directors. Through approval by the
board of directors, the original management team of the plant was
kept in place, with both the chairman and general manager coming from
the building materials group.
The outcome is actually resulted from hard negotiations between Xinda
and the plant. A manager from Beijing Building Materials Group admitted
that even if the new company opened, they did not want to see directors
from Xinda involved in the day-to-day operation. One of the reasons
is that the current difficulties of the plant are caused not by the
operation but by the policy; the other is that a director from an
asset management company would not know about the cement industry.
Misleading would produce contradictions and cause internal instability.
Xinda Investment Banking Department Manager Chen Xiaozhou, in an interview
with Caijing, did not answer the question directly, concerning if
the directors from the asset management company would be involved
in the plant operation. He only emphasized that financial control
is Xinda's strong point, and that the control executed by the board
of directors should be financial control. According to stipulations,
the board of directors will check the plant's financial data regularly,
so as to ensure 100% transparency of the plant operation information.
"A plant has the operating right only, without the rights of investment,
loan, guarantee or asset disposal. We believe the arrangement will
be effective."
From repelling to admitting, Xinda and Beijing Cement Plant experienced
a hard time together, which includes unwilling yield by the plant
and compulsive respect by the company for the traditional system and
plant culture.
As for the plant's disrespect for its stockholder's interests, Chen
Xiaozhou has his own experience, but in the meantime he stated his
understanding: "Although Beijing Cement Plant is a legal person from
the very beginning, the Building Materials Group has controlled it
strictly."
Whether the asset management company has the right of recall to dismiss
staff in the management level is another more sensitive problem. An
asset management company department manager thinks the possibility
to dismiss the plant management subject to the decision by the board
of directors, is almost nil.
An expert points out that under the circumstances where the relevant
reform measures are seriously lacking, an asset management company's
entry to a plant, even with state-owned large stockholder status,
will still encounter restrictions from the old system. |
