China National Building Material (CNBM), a public traded company listed in Hong Kong, is expected to lower its debt-to-net-worth ratio by around 60 percentage points after merging with China National Materials Group (Sinoma), said Cao Jianglin, president of CNBM, Caixin reported.
The company’s debt-to-equity ratio stood at 228% at the end of June. It is expected to decrease to 167% after the merger. Both companies specialize in construction materials.
Cao said the executives hope to cut debt by increasing operating cash flow and decreasing capital expenditure. The A-share stock market also offers some opportunities for their debt reduction.
According to a joint announcement released on September 7, CNBM will merge with Sinoma at a stock swap ratio of 1:0.85 — one CNBM share for 0.85 Sinoma shares.
Meanwhile, Deutsche Bank thinks the stock swap proposal is not attractive to Sinoma and is likely to be rejected by Sinoma’s independent shareholders. CNBM’s past financial performance has shown to be weak, which will not please long-term investors.