Xinxing, First Heavy in merger talks: Sources

Liu Mingzhong, chairman of Xinxing Cathay International Group, which owns 66,3 percent of Chinese technical textile and clothing company Jihua, gives a press conference on Nov 26, 2014 at the Michelin Technology Centre in Cebazat, central France, to officialise a partnership between Michelin and Jihua for the manufacturing of high-end shoe soles.[Photo/VCG]

Talks are taking place about a merger between Xinxing Cathay International Group Co and the parent of China First Heavy Industries Group Corp as part of the government's overhaul of State-owned enterprises, sources with direct knowledge of the talks said. Shares of the listed units jumped.

Xinxing's main businesses include metal smelting and processing, as well as textiles and garments, according to its website. First Heavy group provides products and services for industries such as steel and iron, electricity, energy, automobiles and mining.

The plan is preliminary and subject to change, said the sources, who asked not to be identified.

The two heavy-industry groups had combined assets of about 170 billion yuan ($26 billion) last year, according to the companies.

A merger would follow similar moves in other heavy industries such as railways, with two trainmakers combining last year to form CRRC Corp. The government is consolidating State companies - in industries as diverse as asset management, airlines and power-generation - to make them more lean and nimble as the economy decelerates to its slowest pace in a quarter century.

The two groups didn't respond to separate e-mailed requests for comment. China's State-owned Assets Supervision and Administration Commission, the government arm overseeing the largest State enterprises, didn't respond to a faxed request for comment.

Jihua Group Corp, a Xinxing unit that manufactures necessities such as uniforms and shoes for the People's Liberation Army, reversed from earlier losses and closed 5.9 percent higher at 8.66 yuan ($1.31) in Shanghai, the largest gain since March 14. Shares of Xinxing Ductile Iron Pipes Co, which makes cast-iron pipes, rose 3.2 percent, the most in a month, to 4.91 yuan.

First Heavy advanced 3.9 percent to 5.37 yuan in Shanghai on Tuesday, reversing from a loss earlier in the session.

Liu Mingzhong is chairman of both groups, which may facilitate discussions on any restructuring, sources said.

Bloomberg