2 Oct 2015
Bohai "Going Out" Case Studies (1): Shandong Firm Uses Hong Kong as Platform for Upgrade and Transformation
Shandong and Hong Kong may be far apart geographically, but many Shandong companies are setting up offices in Hong Kong in order to take advantage of the city’s professional services and shipping facilities and boost their international trade and investment ventures. Once established in Hong Kong, they seek opportunities to co-operate with foreign companies in commercial and technology ventures, carry out corporate upgrades and transformation, while looking for investment and financing channels for co-operative projects.
Financing the Energy Business
Grand Future Group Limited (Grand Future), incorporated in Hong Kong in 2012, is a wholly-owned subsidiary of the Shandong Energy Group/Shandong Energy International Trading (Shandong Energy). Grand Future’s management team points out that Hong Kong’s well-developed financial sector can provide a wide range of financial facilities for its energy trade activities, including trade credit financing, discounting and other financial services, as well as financing for overseas purchases of energy, mining and other resources. It also uses Hong Kong as a platform for overseas investment and for planning mergers and acquisitions of energy and mining projects. In the longer term, Grand Future is looking at using Hong Kong’s capital market for bond issuance and for the listing of its investment projects.
Shandong Energy is a company wholly-owned by the Shandong government. Its primary business focus is coal-generated energy, supplemented by the use of other traditional energy sources like electricity, oil and gas. It has actively ventured into nuclear energy, wind and solar energy, biomass and a number of other new energy resources. It is also developing its energy equipment manufacturing, chemical processing of coal and a range of other innovative business activities. It has a number of subsidiaries, including mining groups, logistics companies, heavy machinery companies and technology R&D/information centres. The group employs more than 200,000 people and has an annual income from its main business of some Rmb270 billion. As an energy company producing about 200 million tons of coal a year, it is one of the top 500 companies in the world, with its business interests extending across more than 10 provinces and autonomous regions in China.
Grand Future is the bridgehead for Shandong Energy’s “going out” initiatives. It makes use of Hong Kong to handle the group’s international trade expansion, overseas resources development, management and technology co-operation, negotiation for investment and financing services, as well as for the collection of economic and commercial information. The international trading business it handles through Hong Kong each year is worth more than Rmb13 billion in value terms.
Hong Kong Services: Helping to Reduce Overseas Investment Risks
Explaining the appeal of Hong Kong’s services in this sector, a spokesperson of Grand Future said: “Hong Kong has many financial institutions, such as investment banks, as well as a wide range of financial expertise. As a result, it can offer suitable financial proposals to companies with regard to their trading and investment activities. Cost-effective financing for projects can be arranged and help given to identify appropriate fundraising channels in the capital market. Hong Kong is also the regional shipping hub. We can, therefore, make use of its international logistics and transport network to handle trade-related shipping matters.”
In terms of overseas investment, Grand Future has already secured mining rights in a number of overseas territories, including Canada and Australia, and is looking into issues relating to the prospecting and excavation of mineral resources. The company is also well aware of Hong Kong’s advantages in term of its free flow of information, in addition to its investment facilitation. Hong Kong’s financial, legal and other professionals are also well acquainted with conditions in foreign countries and can make informed assessments of overseas investment projects in terms of financial, legal and tax arrangements, thus reducing unnecessary investment risks.
Shandong Energy has been actively seeking technology co-operation opportunities abroad over recent years. In addition to coal energy, it also hopes to find partners in the clean energy and new energy sectors and to secure advanced energy equipment for the group’s upgrade and transformation. Grand Future may also make use of Hong Kong’s liberal immigration policy and free flow of information to obtain technology resources and talents from abroad, while also accessing Hong Kong’s professional services to make risk assessments and financing arrangements for its technology projects. Hence, Grand Future is an important window of Shandong Energy to conduct outbound investment and cooperation with foreign counterparts.