Metallurgical of China : Strategic Reorganization between Minmetals and MCC Aims to the Global Market

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A few days ago, the SASAC announced that the implementation of the strategic reorganization between China Minmetals Corporation (hereinafter referred to as Minmetals) and China Metallurgical Group Cooperation (hereinafter referred to as MCC) was approved by the State Council. After strategic reorganization, a 'super carrier' in metal and mineral fields with a total asset of over RMB came into being, which aroused extensive attention from international and domestic markets.

What contributed to the strategic reorganization between the parties? What are the features? How to carry out follow-up work? Shen Ling, Chief Accountant and leader of the reorganization working team of Minmetals, accepted the exclusive interview of the journalist from Economic Daily and China Economic Net on these questions.

Expand space: improve competitiveness

Journalist: The strategic reorganization between Minmetals and MCC attracted extensive attention. What's the objective of the strategic reorganization? What's the meaning?

Shen Ling: The strategic reorganization between Minmetals and MCC is an important measure to fully implement the Party Central Committee and the State Council's guiding thought of 'building stronger, better and larger state-owned enterprises and continuously enhancing the vigor, control force, influence and anti-risk capability of the state-owned economy' to create a world-class enterprise with international competitiveness under the general background of deepening the reform of state-owned assets and enterprises. In consideration of the guarantee of resource supply and resource security and China's role in the global economy in future, a large metal mining enterprise with international competitiveness is needed.

The reorganized Minmetals will commit itself to building a world-class metal and mineral enterprise group, striving to be a state-owned capital investment company in metal and mineral industries, building a higher-level international operation platform to contribute to the cooperation in the international capacity and equipment manufacturing of steel and nonferrous metal, and achieving new breakthroughs in international contract fields such as infrastructure construction. The strategic positioning of the reorganized Company is to be 'the guarantor of resource security, innovator of industrial upgrading and driver of circulation transition'.

After strategic reorganization, Minmetals will gradually show its scale effect and synergistic effect in such business as resource development, trade flow of bulk commodities, engineering construction and real estate development. Recently, Minmetals cooperated with Alibaba to build a B2B platform for steel transaction, aiming to build a better ecological chain to equip China's metallurgical industry with both powerful production and global circulation capacities and provide more effective supply for the market. In this sense, the strategic reorganization between Minmetals and MCC is more beneficial to the construction of complete industry and value chains of the global metallurgy and mining industry and can promote the industrial transformation and upgrading and the international capacity cooperation, which not only can enhance the enterprise's core competitiveness and international influence, but also will bring wider space and possibilities.

Complementary reinforcement: explore the longitudinal reorganization

Journalist: Multiple ways of reorganization have been adopted by the central enterprises to deepen the reform this year. What innovative aspects and features does the strategic reorganization between Minmetals and MCC have?

Shen Ling: There are many different patterns of corporate reorganization. Even if some patterns are similar, their connotations and essences are different. The key for the combination of two enterprises is whether they can establish a common goal based on a strategic consensus. On this basis, some basic principles and logics shall be followed; for example, the reorganization shall be conducive to the realization of the respective strategic goal of the two enterprises; the reorganization shall be carried out at a lower cost and in a simpler process; the reorganization shall be conducive to the corporate governance after reorganization.

The strategic reorganization between Minmetals and MCC is of innovative features. It is the joint and integration of two Fortune Global 500 enterprises and is carried out on the basis of strategic consensus and a common goal of building a state-owned capital investment company in metal and mineral industries. This strategic reorganization provides a new path, i.e., the 'complementary reorganization' of enterprises in different links of the same industrial chain and with different superiorities. The complementary reinforcement helps to exert the synergistic effect and realize advantageous complementarities, and greatly decrease the operational difficulty of reorganization at the same time. It is specifically embodied in the following three aspects:

First, the two enterprises have few overlapping business and they are complementary in the whole industrial chain, which means that the reorganization doesn't require large-scale integration of core businesses, but requires the complementary reinforcement of the superiorities of the two to increase efficiency and reduce cost.

Second, carry out the reorganization at a lower cost and in a simpler process. Implementing the strategic reorganization by gratuitously transferring state-owned assets rapidly realizes the reorganization of the two central enterprises at the lowest cost and also helps to maintain the stability of the current framework.

Third, Minmetals and MCC share a common future goal that is to make efforts to be a world-class metal and mineral enterprise group and strive to be a state-owned capital investment company in metal and mineral industries. The reorganization is the beginning to achieve the goal actively, which can operate larger capital and support the participation in the global competition. It is a useful exploration to implement strategic reorganization by gratuitously transferring state-owned assets for the building of a state-owned capital investment company.

At present, a large enterprise shall have the ability to survive in and adapt to the internet era. It shall exert its advantages, and more importantly, avoid solidified and stylized problems that frequently occur in large enterprises. The corporate organizational structure, process, incentive mechanism, etc. shall be reorganized and innovated in different ways. Neither longitudinal nor horizontal reorganization means the simple combination of two enterprises; instead, reorganization is a long process requiring practice and innovation.

Cooperative development: magnify merging effect

Journalist: From the perspective of external environment, the metal and mineral industries are at tide when the production capacity is seriously excessive, prices decline sharply and enterprises have difficulty in profiting. How to magnify the merging effect to develop the reorganized enterprise into one of the top 100 global enterprises?

Shen Ling: In the face of price fall of bulk commodities, the markets usually see the difficulty, pressure and risk, but in fact, there are also opportunities. It's a chance for China's enterprises to acquire quality resources and optimize the asset structure. Some large global mineral enterprises are suffering from various pressures and difficulties, so they must reduce the leverage by deleverage to guarantee the financial health. During that process, they inevitably adjust and sell part of assets and the valuation of such assets is comparatively reasonable, so we can seek the chance for global asset allocation.

Currently, Minmetals and MCC, on one hand, face the severe industry situation where the overall demands is low, the production capacity is seriously excessive and prices decline continuously; on the other hand, they face the strategic opportunities of economic transformation development such as 'One Belt and One Road', Industrialization in Africa, economic and trade cooperation between China and Latin America, collaborative development of Beijing, Tianjin and Hebei Province, and construction of Yangtze River Economic Belt. The state's strategic orientation and the new market opportunities provide guidance for us to expand new space and new development fields. Especially the emerging markets such as Southeast Asia, Central and Eastern Europe and Africa have a great potential for development. After reorganization, the two enterprises will properly grasp these opportunities and jointly realize the goal to be a world-class and the most competitive metal and mineral company in China.

A more powerful capital strength will be formed after reorganization of the two enterprises, and they will become a company with assets of over RMB 0.7 trillion. Besides, more integration work will be carried out in capital operation and efficiency improvement. From the perspective of building a state-owned capital investment company, reorganized Minmetals will more use capital operation to promote and achieve the strategic intent and optimize asset allocation. Both parties have a chance to create new business competitive advantages that don't exist today. As for the existing businesses, they shall be further complemented, reinforced, upgraded and optimized.

It is encouraging that up to now, all financial institutions, investors, upstream and downstream clients, interest related parties and ratings firms related to us hold positive views and outlook for the reorganization of the two enterprises.

Goal-guided: grasp the development opportunity

Journalist: After reorganization of the two enterprises, where do you planned to start from? What are the schedules and roadmaps for the follow-up work?

Shen Ling: We plan to joint orderly first, and then integrate.

For joint, it means the joint of the whole management system first. Meanwhile, the corporate strategy after reorganization shall be further defined. After reorganization, the strategic goals and directions of Minmetals will become wider and it will commit itself to building a world-class metal and mineral enterprise group and strive to be a state-owned capital investment company in metal and mineral industries. The strategic positioning of Minmetals will also be clearer, i.e., striving to be the 'national team in metallurgical construction and operation services, main force of capital construction and pacemaker of emerging industries'.

After reorganization, MCC and Minmetals will not only retain their superiorities and status in their respective fields, but also obtain larger development space. Especially, under the background that the state strengthens the reform on the supply side and under the guidance of 'One Belt and One Road' strategy, 'Going Global' strategy, and 'de-capacity, de-stocking, deleveraging, cost reduction and shortcoming overcoming', the complementary industrial sectors of the parties will bring large service expanding space. Especially in the overseas, the global circulation network and resources bases across Australia, South America and Africa of Minmetals form a good coordination with MCC's overseas large-scale construction projects, especially those in the countries and regions along 'One Belt and One Road'. The complementary regional advantages will bring tremendous development space and make greater contributions to the practical implementation of national strategies and policies.

Some reforms are problem-based and some are goal-oriented. The strategic reorganization between Minmetals and MCC are more goal-guided. We will form framework schemes and implementation blueprints for major strategic positioning, strategic goals and ways of strategy implementation, deal with easy issues before difficult ones, and carry out optimization and integration of the two enterprises based on the strategic priorities.

As for the schedules and roadmaps, we will refine them based on the general principle framework mentioned above. The recent work focus is to try to finish the transfer and joint of assets, personnel and administrative relationships and specify the new management structure and decision process; it is preliminarily planned to finish the reorganization and integration framework scheme in the first half of 2016. The subsequent specific measures will be defined based on facts, specific circumstances and standards we set. Specific action plans won't be made until the necessity of integration, strategic deployment, assets involved, and strategic and financial goals to be achieved after integration can be explicitly described, and the action plans will be implemented in a normative marketization manner.

To build a stronger, better and larger enterprise, all aspects shall be coordinated and considered. An enterprise can't be strong without a certain scale, so a strong enterprise shall be based on scale, while the final sustainability is reflected by quality. An excellent and efficient enterprise has a solid foundation and is sustainable. Besides, its excellence and strength can ensure its growth and scale expansion. The strategic reorganization between Minmetals and MCC aims to jointly build new capacity, create new value and establish a stronger, better and larger enterprise. We have great expectations of the aims.