An article summary from Pacific Epoch confused and intrigued me:

China’s State-owned Asset Supervision and Administration Commission (SASAC) has approved Chinese IT distributor Digital China’s (0861.HK) management buyout (MBO), reports Caijing Magazine quoting Softbank Asia Infrastructure Fund (SAIF) managing partner Andrew Yan. Yan said Digital China executives will purchase over ten percent of Digital China shares for HK$1.318 billion at HK$3.5 per share. After the MBO, Digital China executive director and CEO Wei Guo will own 10.29 percent of Digital China to become the third largest shareholder after SAIF and Legend Holdings. Digital China announced in August that its shareholders Legend Holdings and General Atlantic sold a 42.94 percent stake in Digital China to SAIF, Hony Capital, Fine Elite Management Ltd. and Guo.

Why would the Chinese government have to approve the sale of a publicly listed firm to private investors?

What is SASAC and what does it do?
SASAC, the China’s State-owned Assets Supervision and Administration Commission of the State Council, is the government’s holding company for state-owned enterprises (SOE). It acts as the State Council’s investment management organization, supervising SOEs, appointing and assessing management, and, crucially, creates and administers laws and regulations for SOEs (their description can be read here).

Digital China is publicly held (in Hong Kong, no less). Why is SASAC involved?
Digital China is a leading distributor of IT products in China. They also provide IT-related services and solution. They were spun off from Legend/Lenovo in 2000 and listed on the Hong Kong stock exchange. Legend Holdings maintained a substantial minority shareholding in the firm.

It’s the ownership share of Legend Holdings that triggers the involvement of SASAC. Legend Holdings is owned by the Chinese Academy of Sciences (CAS) and an employee shareholding fund. Guo Wei, Digital China’s CEO and a participant in the buyout, received his master’s degree from CAS.

Because CAS is a government organization with business interests, it is subject to SASAC’s regulatory and administrative regime. Even after the buyout goes forward, Legend Holdings will maintain somewhere around 18% ownership. SASAC is not going away.

It’s interesting to see that government ownership, even at two degrees of separation, impacts what should be a straightforward business transaction. Just when you think that the Chinese economy may be moving incrementally to more private ownership, the public sector comes of out the shadows.

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