It is a common practice for listed companies to reorganize existing assets before listing. Asset reorganization generally achieves the following four purposes.
(A) improve the rate of return on capital, in order to obtain a higher stock issue price, so that listed companies can obtain the largest possible market value, which is also the main purpose of asset restructuring.
(2) Avoid horizontal competition. The horizontal competition that should be avoided refers to the competition between listed companies and "related parties" due to similar production and business activities. The listing rules of HKEx are quite complicated. According to the relevant regulations of our country, it can be simply understood as two situations: first, the parent company that controls the shares of listed companies belongs to the related party of listed companies; Second, the subsidiaries under the control of the parent company of a listed company are also related persons of the listed company. If these related parties engage in production and operation similar to those of listed companies, there will be conflicts of interest and they will be considered unsuitable for listing by the management department. If this situation exists in listed companies, it must be dealt with through asset reorganization to avoid horizontal competition with related parties.
(3) Reduce related party transactions. According to the listing rules of Hong Kong Stock Exchange and other countries, the transactions between listed companies and related parties belong to connected transactions. Related party transactions are not prohibited by law, but it is stipulated that more than a certain number of related party transactions must be disclosed. However, if the related party transactions are complicated, it will be difficult to disclose, and it will be considered as "related party transactions that are not suitable for listing". Therefore, through asset reorganization, related party transactions should be reduced as much as possible, and "related party transactions that are not suitable for listing" should be changed to "related party transactions that do not affect listing".
(4) Separation of assets that are not suitable for listed companies is a special purpose of asset reorganization in China. It mainly includes: assets occupied by "enterprises run the government" such as public security bureau, police station and court, and assets occupied by "enterprises run the society" such as kindergartens, schools, hospitals, canteens and staff dormitories. Of course, whether this part should be separated from listed companies needs specific analysis.
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