Investors Back Baowu Steel’s SOE Reform Step

Fund managers and steel companies have invested more than 1 billion yuan in China Baowu Steel Group’s online trading subsidiary Ouyeel as part of a pilot project tied to state-owned enterprise (SOE) reform.

The commitment by investors including Beijing Shougang Fund Investment Co. and Benxi Steel Group Corp. complements Ouyeel’s implementation of an employee stock ownership plan promoted by the State-Owned Assets Supervision and Administration Commission (SASAC).

SASAC has been working with SOEs for more than three years on “mixed ownership reform” initiatives, including employee shareholding plans. The goal is to inject more and a wider variety of stakeholders into state-controlled SOEs.

Under the SASAC pilot program, which launched 10 months ago at Ouyeel and nine other companies, an eligible employee can own a equal to up to 1% of his or her employer's equity. But at least 34% of a company’s equity must remain in the state’s hands.

SASAC hopes employee shareholding will motivate workers and improve SOE competitiveness.

Following Ouyeel’s latest fundraiser, non-employee investors including fund managers will hold a combined 23% of Ouyeel’s shares. Employees will control 5%.

Meanwhile, the stake in Ouyeel held by state-owned Baosteel Group and Baosteel International will decline to 36.7% from 51%.

Ouyeel was chosen for the pilot in part because its workforce is relatively small. The new shareholders include 126 employees holding key positions in research, management and other fields.

Companies participating in the pilot should be flexible with any employees who transfer to new positions in order to protect incentive goals, said Bai Yingzi, a SASAC senior official.

SASAC is not testing employee stock ownership plans at major SOEs such as state-owned Baowu, China’s largest crude steel producer. The steelmaker is the product of the December merger of Shanghai-based Baosteel Group and Hubei province’s Wuhan Iron & Steel Group.

Baowu said more than 38 tons of steel traded last year on Ouyeel’s third-party platform, which launched in February 2015.

Other investors pitching in to support the trading platform include Global Logistic Properties Ltd., CCB Trust Co. Ltd., Jiangsu Shagang Group Co. Ltd., and Mitsui & Co. Ltd.