China Chengtong Group, a newly appointed state-owned assets management company, will invest 5 billion yuan (US$617 million) into the Shanghai-based Worldbest Group Co., Ltd., to resolve the latter's financial crisis.

Sources with the State-owned Assets Supervision and Administration Commission (SASAC) confirmed on Wednesday that the merger has been formally approved, and staff from the two firms are jointly working on executive projects.

The merger, the largest one between China's state-owned enterprises (SOEs), marks China's first major effort for redistribution of the state economic sector and restructuring of enterprises controlled by the central government.

The Worldbest Group, with total assets reaching 57.2 billion yuan in 2004, has grown to be China's leading pharmaceuticals and textile company through roughly 90 mergers after its setup in 1992 with a registered capital of 140 million yuan.

Without further investment from the shareholders, funds for the mergers were mainly in the form of bank loans. The latest auditing report showed that by September 20, loans to the Worldbest Group totaled 25.1 billion yuan and those to its head office amounted to 4.1 billion yuan.

From August to November, the state-held firm encountered requests for more than 1.25 billion yuan by at least six banks because of overdue loan payments.

According to official sources, the SASAC's decision to save the Worldbest Group by capital injection through the Chengtong Group, aims to increase state shares in "the preponderant enterprises of the preponderant sectors," as well as to fundamentally perfect the financial structure of the Worldbest Group.

The company, after purchasing two major pharmaceutical manufacturers in Shanghai and Beijing in the past several years, has laid the foundation to be the "aircraft carrier" of China's currently vulnerable pharmaceuticals industry, and became a firm "of huge potential," the sources said.

According to an agreement reached by the SASAC and the China Development Bank on Sept. 16, the policy bank granted the Chengtong Group the right to enjoy a 20-billion yuan policy loan from 2005 to 2008 to support SOE reform.

The Chengtong Group, one of China's leading logistics firms with total assets of 19 billion yuan by September, will apply for a 5-billion-yuan loan from the China Development Bank to swallow Worldbest.

All the 5 billion yuan will be injected to the head office of the Worldbest Group, with 2.5 billion yuan as added investment. After the merger, Chengtong will become Worldbest's largest shareholder and play the investor's role on behalf of the SASAC.

The prospect of salvaging the Worldbest Group was lightened by the capital-injection plan, and the stock of its pharmaceuticals listed company was regard as one of the "golden" shares of the week.

After the merger, said sources with the Worldbest Group, the remounted company will focus on the pharmaceuticals industry, with drug manufacturing and circulation, medical care and medical equipment as its main business.

It will also build China's largest and most powerful logistics network, and improve the textile business, especially overseas textile business, of the Worldbest Group.
 
(Xinhua News Agency December 1, 2005)