The upcoming merger between two State-owned building materials manufacturers－China National Building Materials Group Corp and China National Materials Group Corp－will give the new entity a clear edge, especially in the cement business, over other global peers, experts said on Wednesday.
Their comments came after nine listed subsidiaries of the two building materials giants suspended trading on the Shanghai and Shenzhen stock exchanges last week, raising speculation about further substantial actions to be taken in their merger, which was announced last year.
According to a statement jointly released by the two companies last week, CNBM will acquire all shares of SINOMA.
Once the deal is completed, Beijing-based CNBM will become China's largest nonmetal materials manufacturer, cement equipment and engineering service provider by production capacity, with total assets of more than 550 billion yuan (.32 billion) and 250,000 employees.
"Since their business is overlapped in the cement sector, the reorganization will help the two companies cut excess capacity and enhance research and development ability to develop other new building materials, preventing price wars in gaining orders for cement from overseas mar-kets," said Zhao Ying, a researcher at the institute of industrial economics of the Chinese Academy of Social Sciences in Beijing.
CNBM's cement production capacity reached 409 million metric tons in the first half of this year, while SINOMA produced 112 million tons of cement.
The merger talks of the two giant groups started last August, when the State-owned Assets Supervision and Administration Commission approved their merger to cut overcapacity and maintain competitiveness of the cement industry.
CNBM is well known as a manufacturer of cement, glass, lightweight building materials and glass fiber, while SINOMA possesses core technologies and complete innovation systems for nonmetals.
"For these two groups, halting trading of all their listed subsidiaries signals the possibility of internal resources integration and mixed-ownership reform, such as employee stock ownership plan (that) might be prepared and conducted," said Shen Meng, director of boutique investment bank Chanson & Co.
Li Jin, chief researcher at the China Enterprise Research Institute in Beijing, said: "China will continue to reinforce the integration between similar businesses and take advantage of leading industry players."
The State Council released the guidelines on SOE mergers and acquisitions last July, calling on the enterprises to form a mechanism in which State assets can flow flexibly by way of merger and acquisition, innovation, reducing capacity, and dealing with inefficient capital.