Feb. 5 (NBD) -- Shanxi Xinghuacun Fen Wine Factory Co., Ltd. (hereafter referred to as "Fen Wine"), a major producer of the Chinese liquor baijiu in China, today announced its controlling shareholder Fenjiu Group has signed an agreement to sell a 11.45 percent stake to a subsidiary of China's state-owned conglomerate China Resources (Holdings) Co., Ltd. (hereafter referred to as "CR Group").
Fenjiu Group is a pilot enterprise of mixed-ownership reform in Shanxi province, and its new move signals the company is extending the reform to its listed arm.
CR Group has strong ties with Shanxi province
According to the updated announcement released by Fen Wine Monday, Fenjiu Group has inked the equity transfer agreement with CRE Yang Company Limited. CR Enterprise, Limited and CRE Alliance Fund also signed the agreement as secured parties.
The stake sale is worth around 5.16 billion yuan (818.8 million U.S. dollars).
The fiscal report for the third quarter of 2017 by Fen Wine shows Fenjiu Group held a 69.97 percent stake in Fen Wine, which once caused public concerns over the latter's system reform and restructuring. The Group will remain the largest shareholder after the transaction.
Regarding why CR Group and its affiliated company was chosen, Shen Meng, board director of boutique investment fund Chanson Capital, said that CR Group is an ultra-large enterprise supervised by the State-owned Assets Supervision and Administration Commission of the State Council. It has built a strong presence in a variety of industries, and once collaborated with the Shanxi provincial government on the reform of state-owned enterprises. This gave the conglomerate an edge in the competition.
CR Group has established strong ties with Shanxi province in recent years.
According to public information, China Resources Capital Management Limited engaged in the establishment of the Shanxi Taihang Fund in September 2017. CR Group participated in the restructuring of Shanxi Jin Coal Group General Hospital in October 2017. Moreover, CR Capital Holdings LLC's general manager Liu Xiaoyong previously served as the director of Shanxi province's Banking Regulatory Commission.
CR's involvement likely to drive Fenjiu Group's growth
Introducing a strategic investor into its listed arm signifies Fenjiu Group is accelerating its pace in reform.
In February 2017, the State-owned Assets Supervision and Administration Commission of Shanxi province and Fenjiu Group's person-in-charge signed business performance liability statements, according to which Fenjiu Group is required to register a 95 percent growth in profits from wine products and complete overall listing in three years from 2017 to 2019.
In December last year, Fenjiu Group released its overall solution for structural and mechanism system, but didn't give any further details, according to Shanxi Daily.
Industry insiders told NBD that the involvement of CR Group is expected to boost the wine company's development and revenue.
Fenjiu Group was once widely criticized for its conservative marketing and management. According to Shanxi Daily's report last Friday, most of the company's employees are satisfied with where they are at, and a modern corporate system hasn't yet been put in place.
With CRE Yang Company Limited as a strategic investor, Fenjiu Group's conservative style will likely embrace a change.
Zhu Boshan, expert in the reform of state-owned enterprises, said to NBD that despite the minor stake, CR Group with rich experience in marketization and internationalization is expected to push the wine maker's structural and mechanism reform.