In the news: Sony PlayStation moves in, China State Construction offers preferred stock and State Grid undergoes reform

Sony forms JV to sell PlayStation in China

Sony agreed to form two ventures with Shanghai Oriental Pearl Group, a state-owned entity involved in hotels, cable TV, advertising and broadcasting in Shanghai's subway system, to start making and selling PlayStation consoles after China lifted its 13-year ban. Sony will have a 70% stake in one venture and 49% in the other. Sony CEO Kazuo Hirai said PlayStation needs to expand its user base. The move follows Microsoft's decision to sell its Xbox One in China and expand in emerging markets with new devices. Console makers have faced a number of sales challenges, such as trying to distract players from games on smartphones and tablets as well as online, many being free. PwC predicts China's video game industry will generate about US$10 billion in sales next year.

Source:
Bloomberg

Linking up with the state-owned Shanghai Oriental can help Sony navigate the regulatory process for getting licences, a strategic move that hopefully allows the company to tap this huge market. Entering China goes beyond approval and sales, however, as success and sustainability mean that the company needs to protect their IP portfolio in the endless battle against piracy. An analyst said: “Without any assurance that their intellectual property will be respected, it is difficult to see how any manufacturer can make money in China.”

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China State Construction offers preferred shares

China's biggest builder by market value, China State Construction Engineering, plans to raise Rmb30 billion (US$4.8 billion) in its sale of 300 million preferred shares to boost working capital. Though subject to shareholder and regulatory approval, the sale would be the largest offering in China by a non-bank company. Regulators introduced preferred shares on a trial basis in March to expand fund-raising options, a result of concerns over tightening credit affecting companies' funding sources. The company plans to sell at least 50% of the shares within six months of obtaining approval from the CSRC and sell the rest in 24 months.

Source:
Bloomberg

Issuing preferred shares is a means for companies to raise financing without diluting ownership. Preferred shareholders have a higher claim on a company's assets than common shareholders in the event of liquidation, though they have no voting rights. They are also entitled to a fixed dividend before funds are paid to common shareholders. This pilot programme marks the first time investors can buy preferred shares in China, and how the country's capital markets will further develop will be of key interest to investors as the country seeks to diversify its finances.

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State Grid opens up private investment

The country's monopolistic state-owned power grid operator will open two of its business sectors – covering distributed power grids and electric vehicle charging equipment – to new investors including private and non-state companies. The two sectors have an estimated market value of Rmb200 billion (US$32 billion). State Grid hopes that successful investors will help build new electric vehicle charging stations in multiple regions across the country.

Source:
Reuters

This illustrates Beijing's most recent effort to promote SOE reform and enhance private investors' participation in China. To increase privatisation, the Premier announced in March that he would open up the telecoms, banking, oil, electricity, railway, resource development and utilities sectors to non-state capital. However, in State Grid's case, the move to attract capital may not necessarily lead to a significant shift into private ownership as potential investors include mixed-ownership companies, such as state-owned entities with non-state shareholders. Once again, despite the effort on the surface, credibility is questionable…

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