Fancy Electric Grid Restructuring Opportunities International Cable Giants Lurk China

Large market opportunities are causing more foreign cable companies to pay attention to the Chinese market.

On July 1st, the world’s second-largest cable producer and distributor, Nexans Group Corporation (hereinafter referred to as “Nexan”) held a conference at Portman Hotel in Shanghai and announced that it would spend RMB 1.24 billion (approximately €140 million) on acquisitions. Shandong Yanggu Cable Group Co., Ltd. (hereinafter referred to as "Yanggu Cable") has a 75% stake.

Nexen Chairman Frederick Vincent described the acquisition as a "milestone event" for the company's development in China. "I hope this transaction will increase the group's total revenue in the Chinese market to 300 million euros per year, which is equivalent to 6% to 8% of the group's total revenue," said Vincent.

The acquisition was limited to the power cable "The power cable division of Yanggu Cable was acquired by Nexans." On the afternoon of July 7th, Zhu Changwei, the person in charge of Yanggu Cable's external propaganda, said in an interview with a reporter from China Times that the power cable department Refers to the two subsidiaries of the group.

It is understood that Yanggu Cable has seven branches (subsidiaries), which are involved in power cables, mining cables, optical cables, ultra-high voltage cables, copper tubes, copper rods and electronics industries. Among them, cables, optical cables and other products are used in China. The market share is quite high. Sales of power cable business in 2010 reached 1.3 billion yuan.

“The two sides started contact last year. Nexans took a fancy to our high market share before it tossed an olive branch.” Zhu Changwei told the reporter that taking the power cable as an example, in 2009 the national grid system had a bid of 800 million yuan. , Yanggu cable products only bid 120 million yuan.

“The technology that Nexans owns for the production of overvoltage cables is not available to domestic companies and is also urgently needed by us.” Zhu Changwei stated that in this cooperation proposal, we propose to apply this technology to the production of domestic products, which is to improve products. The market competitiveness and the overall strength of the group have great benefits.

“The agreement between the two parties was signed before the press conference.” Zhu Changwei said that Yanggu Cable is currently only a joint-stock enterprise and has no state-owned shares.

According to the agreement signed by both parties, Nexans will hold 75% of the shares in the newly established joint venture, and Yanggu Cable will hold 25% of the shares. The transaction uses a zero-cash/zero-debt pricing model with approximately RMB 1.24 billion (approximately €140 million).

"The acquisition also needs the approval of the relevant departments." Zhu Changwei told this reporter that the transaction is expected to take 6 to 8 months to complete.

The “12th Five-Year” Business Opportunity in the eyes of foreign investment “The acquisition of Yanggu Cable is mainly intended to further expand the company’s development in the Chinese market, meet the needs of China’s domestic market through acquisitions, and integrate Yanggu Cable into the company’s global infrastructure cable supply network. China," said Vincent, China is already the largest and fastest-growing market in the world's energy infrastructure and currently accounts for 27% of the global cable market.

"Obviously, China's wire and cable industry has entered a period of rapid growth and has a strong attraction for Nexans." According to Prof. Wang Wei, vice president of the School of International Trade and Economics at Shandong University of Finance and Economics, according to the upcoming "12th Five-Year Plan" According to the plan, in the next five years, the electric power, railway, rail transit, energy, construction, communications, shipbuilding, and automotive industries will still maintain a large scale of investment, which will certainly provide the cable industry with many rare opportunities.

Not only Nexans, as the most important supporting industry in power grid construction, many wire and cable companies hope to win a certain market share with the opportunity of the “Twelfth Five-Year Plan” power grid planning.

Taking the transformation of large cities' power grids as an example, the amount of wire and cable products involved varies widely, ranging from overhead lines of 10 kV class, aluminum-core stranded conductors, to high-voltage power cables, and wires and cables for construction. In particular, the application of 500kV EHV wire and cable will be an important development opportunity for cable companies. With the opportunity brought by another round of development of hydropower resources in the southwest and northwest, most of the hydropower stations and pumped-storage power stations in China will use 500kV cables as ultra-high voltage outlets.

Obviously, this will bring certain opportunities for companies that are dedicated to developing high voltage grade cables.

According to public information, Nexen's global sales in 2010 were 6 billion euros. At present, China only accounts for about 2% of its global sales. Orders are also mainly transferred from the parent company.

“The cooperation with Yanggu Cable can further consolidate our position in the existing market and is in line with our long-term development strategy in emerging markets.” Vincent said when it comes to cooperation with Yanggu Cable.

Domestic cable companies are "large but not strong"

Corresponding to the merger and acquisition of the giants of the international cable industry, China's cable industry may be the "defective."

According to public information, nearly 10,000 home-made wire and cable manufacturers in China have already become the world's largest wire and cable manufacturers. The problem is that there are fewer cable manufacturers on the scale, and so far we have no world cable brand that has become famous. We have not yet seen a Chinese cable company truly step into the halls of world-renowned enterprises.

In addition, the ultra-clean cross-linked polyethylene insulation used for high-voltage cables has not been produced so far in China, and many other special wire and cable materials are imported.

“Not only in China, but the merger and acquisition activities of this industry may increase in the future.” Vincent believes that producers are very scattered in both the cable market in China and in the world, and the Nexans Group ranks second in the world in terms of sales, but its market share Only 7%.

Prior to the acquisition of Yanggu Cable by Nexans, Xinmao Group, a privately-owned company based in Tianjin, planned to acquire Dutch fiber-optic cable manufacturer Draka at the cost of 1 billion euros in late 2010. However, it eventually lost to the Italian bidder Prysmian. It is reported that Prysmian is currently the world's largest cable manufacturer.

Draco is currently considered to be the leader in China's cable market. There are 60 branch factories in 25 countries and regions in the world, including Europe, the United States, and Asia. It is one of the advanced companies in the wire and cable industry in the world today. .

“Opportunities are equal for enterprises.” Wang Wei said that the excessive dispersion of global cable manufacturers has begun to promote the pace of mergers and acquisitions for cable companies with stronger strength.