On November 20, the northern control water group and the Asian development bank signed a loan agreement in Beijing, and the adb will provide $240 million in loans and $500,000 in technical assistance to north water control. BeiKong water Zhang Honghai, chairman of the board, said the merger and acquisition is the trend of the future water industry, water treatment industry as a leading enterprise of BeiKong water capacity of 20 million tons, the market share of only 4%, industry concentration needs to be improved.
Galaxy securities on November 4, the environmental protection industry research report that the environmental protection industry investment in "a city" is sound, but constrained expansion speed obviously, mergers and acquisitions can rapidly expand the scale of the company's income, the merger and acquisition of the curtain open, environmental protection industry to accelerate expansion.
The "big way" approach to m&a is not optimal, but it is a realistic choice in the current policy, market environment and development stage of China's water industry.
Environmental protection industry become strategic emerging industry since 2010, especially in recent years, environmental events frequent outbreaks, a series of policies to promote the development of water treatment industry intensive, optimism of environmental industry has attracted a large number of investment institutions, for the water treatment industry to provide abundant funds needed for the m&a.
With the improvement of the water treatment industry standard, the profits of the enterprises are gradually diluted, the small and medium-sized enterprises are not able to sustain, and it is a good choice to sell assets while the environment industry is in the high valuation stage.
Environmental protection industry research institute of tsinghua university, China water network editor-in-chief Fu Tao believes that "the internal situation of the external environment has changed the industry, to promote industry has entered a era of mergers and acquisitions, industry will experience a period of turmoil, could no longer maintain the stable, connotative development."
Without the personage inside course of study can accurately predict when the merger boom is over, but predictably, water treatment industry will eventually end scrimmage situation and form several earning billions of large water group, master the most advanced technology of small and medium enterprises to survive, water treatment asset securitization (ABS) will also get great progress.
Mergers and acquisitions in the water sector are on the upswing
China's water treatment market is still in a melee phase.
The water treatment industry continued its 2012 merger trend and began to reach a small peak in the first half of 2013.
In March 2013, the northern control water company paid 9509.3 million euros for the Portuguese water service of veolia, which could be adjusted to a maximum of 100 million euros. Over the same period, the northern control water company spent more than 500 million yuan to acquire the entire equity of seven water companies in dongguan. In July, the company acquired a 60 per cent stake in Beijing construction environment development limited liability company for 270 million yuan. To acquire the two wholly-owned subsidiaries of standard water co., ltd. and 36 water utilities with sewage treatment. In September, the northern control water company was awarded a total of 955 million yuan for the nine waterworks projects.
In addition to the leading companies, companies in the first camp of water treatment industry have stepped up merger and acquisition.
Since 2013, China water industry group, ranked seventh, has continuously acquired six environmental enterprises. Sander group, a privately owned listed company, bought three sewage plants owned by Beijing municipal group for 240 million yuan. China's water ministry purchased a 20 per cent stake in Beijing tianren environmental technology co., ltd. for 110 million yuan. On November 22, sanchuan takeover of yingtan city water supply using 43.95 million a 22% stake in the company, together with three shares last year April 9 to the transferee 24% stake in yingtan water supply company bought 27.065 million yuan price, sanchuan shares will total owns a 46% stake in yingtan water supply.
Even foreign-funded water groups that are skilled and sophisticated have had to adapt to the wave of mergers and acquisitions in the Chinese market. Recently, suez environmental group has acquired a 65 per cent stake in a wholly-owned subsidiary of chongzhou city water purification co., LTD.
In fact, even after two years of mergers and acquisitions, at present China's water treatment market main body is still in the stage of melee, small and scattered market share, has not yet formed in the true sense of leading enterprises.
BeiKong water with water treatment industry ranked first, the market share of only 4%, according to China's water network, the top 32 water treatment of the company's total market share of only 37.35%, China's water treatment industry concentration degree is not high, and low market share are provided.
Income in water treatment industry, combined with water supply, the current domestic production value more than billions of enterprises has not been formed, it is predicted that by the third quarter of this year, operating income of more than 2 billion yuan not more than 5 enterprises, more than 1 billion yuan income of enterprises can be among the first camp.
At present, the pattern of China's water treatment market shows that the north control water, the first joint venture and the veolia three enterprises have the capability of daily processing of over 1000 tons, which is the leading position of the industry. China's water resources investment, the Chinese and French water supplies, and the water supply and drainage capacity of China's environmental protection system exceeded 500 tons; In the third camp, more than a dozen companies, such as sander environmental protection, China water service group, shangshi environment and guzhen environmental protection group, have a hundred other small local water treatment companies.
Beijing bishui science and technology co., LTD. (hereinafter referred to as "green water source"), the managing director of the water treatment industry will continue to do so, he told the 21st century economic herald.
The policy market is dual - driven
The tide of mergers and acquisitions is exacerbated by the government's shortage of funds and the potential for transformation.
The original driving force of the water treatment industry m&a is policy.
In the first half of 2012, the ministry announced "environmental services" twelfth five-year "development planning" (draft), is put forward in the "twelfth five-year" period, cultivating regional environment comprehensive service provider 30-50, 20-30 internationally competitive national development model integrated comprehensive environmental services group, including 10-20 annual output value in 10 billion yuan of above. Explicitly ask the industry to improve concentration.
In the first half of 2013, international and domestic economic growth slowed, and local government revenue and financing capacity fell, and water treatment faced insufficient investment. On July 31, the conference of the state council, "research on the government power to buy public services to the society, the deployment to strengthen the construction of urban infrastructure" resolution, capital and technology strength is not strong of small and medium-sized enterprises will be difficult to have a foothold.
In addition, the improvement of environmental indicators such as water quality further aggravates m&a expectations.
In October 2013, premier li keqiang of the state council signed a state council order to promulgate the urban drainage and sewage treatment ordinance (hereinafter referred to as the "regulations") to be implemented as of January 1, 2014. The regulations raise the quality of the environmental industry, further spread the profits of operating enterprises, or will force small and medium-sized enterprises with insufficient financing capacity to exit the market.
From the perspective of the industry, China's water treatment industry has entered the stage of industrial consolidation since the 12th five-year plan period. Fu tao believes that the current m&a upgrade of water treatment industry is a result of industrial development stage.
At present, the total number of new water treatment project and the average size of a double declining trend, at present nearly 700 cities of the country's water supply and drainage facilities construction completed, new investment opportunities are mainly concentrated in waterworks DiBiao transformation, or to the township, town, county, etc into smaller administrative areas.
For the above reasons, fu said that the stock market will inevitably set off a wave of consolidation.
Because of the exclusivity of environmental operations, the company has exclusive access to water treatment plants and waste treatment plants in a certain area, according to research by galaxy securities. Therefore, in the rapid growth of the industry, accelerated expansion is the inevitable choice of advantageous enterprises, and merger and acquisition is an important means for enterprises to accelerate expansion.
The combination of the government's shortage of public service funds and the transformation of its functions has intensified the merger wave, and both sides could benefit from the transaction.
The dual role of economy and policy has led to a sudden increase in the capital threshold of enterprises entering or expanding the water treatment industry, and the heavy asset enterprises can bypass the previous local protection barriers by funds.
In addition to low profitability, the factors that make small water companies more and more difficult to bear, including regulatory and industry standards, increase the operating costs and difficulties of environmental enterprises.
"Some small and medium-sized companies have difficulty seeing hope in the short term and have chosen to work with large groups under pressure, including acquisitions and controlling transfers." Fu Tao analysis, the service ability under 1 million tons of water company many chose to transfer, such as water BeiKong buy-outs construction environment, sander Beijing municipal sewage project group, chongqing kangda acquisition of Beijing urban construction group are examples. "It's hard to sustain a mid-tier asset company that doesn't have four or five billion assets."
And accepting the fate of the merger is not without benefit to small and medium-sized enterprises, while it is a good choice to sell assets at the high valuation stage.
Who will win after shuffling?
Either spell assets or spell technology.
It is widely believed in the industry that heavy assets and heavy technology companies will benefit from this wave of mergers and acquisitions.
Zhang Honghai in water sector strategy BBS said: "BeiKong water is successful, the most important reason is that there are overseas capital market support, financing hk $billions in three or four years, annual interest rate are few at four o 'clock."
Galaxy securities believes that capital strength constitutes one of the "moats" of the dominant company.
The path of a heavy-asset company, similar to the north's water control, is likely to grow wider in the future. In fact, there are plenty of low-cost financing channels for such companies. The company recently sold more than 400 million new shares to an independent third party, Mount Reskit, for hk $1.18 billion, after it issued $500 million in bonds.
The low-cost financing channels include loans from international financial organizations such as the world bank, the Asian development bank, the international agricultural bank or the Japan international cooperation bank.
Everbright international has received a long-term loan of $70 million from ifc70 million, a $100 million loan from six overseas Banks such as CDB, and a 10 billion yuan financial support strategic cooperation agreement with CDB.
In the environmental protection industry face the shortage of financial fund, with the local government debt (generally in the form of "city debt") to conduct an environmental project investment, not only can realize the environmental requirements of local government, were also more likely to get approval, this will help with water treatment company is close to the local government.
In addition to traditional means such as equity financing and issuing bonds of listed companies, the company that first tried asset securitization (ABS) will receive an additional source of funds.
At the end of 2011, nanjing public holding sewage treatment fee usufruct special asset management plan, by the China securities regulatory commission approval, the plan period for 5 years, to raise funds will be used in the east, nanjing bridge north, iron the sewage treatment system.
The other ones that will be retained will be those with the most advanced technology. Such companies in addition to including veolia, suez, Singapore hyflux group, such as overseas water outside the strong traditional brokers generally optimistic about the domestic focus on environmental technology companies such as Thornton environment, water source, etc.