Move will inspire other State-owned distillers to follow suit, analysts say
Wuliangye Yibin Co, China's leading liquor maker, has disclosed a mixed-ownership reform plan, under which it aims to raise up to 2.3 billion yuan ($364.04 million) in a private share placement to fund projects, according to a filing with the Shenzhen Stock Exchange on Saturday.
Experts said the move is meaningful for the company's own business as well as reforms by other State-owned liquor makers.
Wuliangye will issue shares to employees, distributors and strategic investors via a private placement, the statement said.
It will use the proceeds to fund projects involving information construction, marketing centers and e-commerce platforms.
The prospective share price is 23.34 yuan, but the company reserves the right to adjust that price according to the circumstances, according to the filing.
Wuliangye suspended share trading on July 29.
The central government has been pushing reform of State-owned enterprises (SOEs), in order to inject more vitality into the enterprises. Some SOEs have already started reforms, such as energy giants China National Petroleum Corp and China Petrochemical Corp.
Wuliangye's move marks the start of reform among major State distillers, Wang Danqing, a partner at Beijing-based ACME Consultancy, told the Global Times on Sunday. "Other liquor makers may follow in Wuliangye's footsteps."
The nation's liquor sector has been under pressure in recent years as the demand for high-end spirits has declined, Wang said. For instance, Wuliangye's 2014 net profit slid 26.8 percent year-on-year to 5.83 billion yuan, according to the company's financial report issued on May 4.
Along with Wuliangye, many liquor makers have realized they need to pursue reform and find new sources of profit, Wang noted. "Some high-end liquor makers have cut prices to attract ordinary consumers, while others have diversified by such means as investing in the real estate industry."
"Wuliangye made the appropriate choice to expand its business based on the development of the Internet," Li Chang'an, a professor at the School of Public Administration at the Beijing-based University of International Business and Economics, told the Global Times on Sunday.
Li said the move to the Internet would become more common among traditional manufacturing enterprises seeking to improve their profits. "For instance, liquor makers can focus on how to increase their sales through e-commerce platforms."
But Li also warned that the State-owned liquor enterprises should not diversify merely for the sake of doing so.
"They need to have a clear strategy, such as how to deploy the funds they raise from private capital," Li noted.
The liquor industry still has great prospects in China due to the huge domestic demand, so it's crucial to pursue the proper strategy to gain market share, Wang said.
The huge scale of domestic demand is partly reflected by the companies' performance. Wuliangye saw its net profit up 85.05 percent to 1.31 billion yuan in the third quarter year-on-year, which indicated that its business had improved, according to the company's financial report released on October 29.
As for Kweichow Moutai, another leading State-owned liquor maker, net profit increased 6.84 percent to 11.42 billion yuan in the first three quarters year-on-year, according to the company's financial report released on October 23.
Wang said that big State-owned liquor enterprises must still focus on their main business, building on their brand recognition.
Small and medium-sized distillers should consider lifting profitability through mergers and acquisitions, Wang said.
