In 2022, amidst increasing downward pressure on the global economy, capital markets experienced heightened volatility, many industries faced difficulties, and international institutions’ outlooks on corporate bond ratings plummeted. However, Shandong Gaotong Holdings (00412.HK) was an exception – on November 18th, Fitch Ratings, one of the three major international rating agencies, announced that after a six-month observation period, it had affirmed Shandong Gaotong Holdings’ long-term credit rating at A-, removed it from its watch list, and maintained a stable outlook. This made Shandong Gaotong Holdings the first overseas subsidiary of a Shandong provincial state-owned enterprise to receive an A rating, and also the highest-rated overseas subsidiary of a local state-owned enterprise.
Fitch Ratings believes that after completing the acquisition of assets from Shandong Gaotong New Energy (01250.HK, formerly Beijing Enterprises Clean Energy Group), Shandong Gaotong Holdings has transformed into an overseas industrial investment and financing platform focusing on new energy and new technology sectors, which will enhance its competitive advantage and growth potential.
Since initiating its strategic transformation last June, Shandong Hi-Speed Holding Group (Shandong Hi-Speed Holding) has achieved a breakthrough from zero to one in just one and a half years, transforming itself into an industrial investment group. Its core advantages have been recognized by international rating agencies, demonstrating the company’s keen awareness and courage to adapt to change amidst major societal transformations. This is also a successful example of the company’s self-evolution and innovative development.
Adapting to Change and Overcoming Challenges to Break Through Bottlenecks
In November 2017, Shandong Hi-Speed Group became the controlling shareholder of Shandong Hi-Speed Holding. As the largest state-owned enterprise in Shandong Province in terms of asset size, Shandong Hi-Speed Group positioned Shandong Hi-Speed Holding as an important overseas investment and financing platform, thus initiating its transformation exploration.
To optimize corporate governance, Shandong Hi-Speed Holding introduced new strategic shareholders and completely reorganized its board of directors, diversifying the industry backgrounds of its members and fully leveraging the board’s role in setting strategy, making decisions, and mitigating risks. To enhance professional investment capabilities, given its business characteristics of primarily managing its own funds and entrusted funds, it built an investment research team with an international perspective and rich experience, accumulating experience in diversified investment and financing in domestic and international markets. To mitigate investment risks, it established a bottom-up, comprehensive, and standardized investment decision-making system and a corresponding comprehensive risk management system. The implementation of a series of measures has gradually solidified the foundation for Shandong High-Tech Holdings’ development in the Hong Kong capital market.
In the past two years, the company’s management, maintaining a strong sense of crisis, has noticed that against the backdrop of changing times, industry trends have subtly shifted, and traditional investment logic is no longer applicable. For decades, China’s massive scale and strong demand have enabled rapid economic growth. During this period of rapid development, companies could survive and thrive by relying on resource-driven and investment-driven traditional approaches. However, that era is over. Especially since 2020, amidst the recurring COVID-19 pandemic, escalating geopolitical conflicts, and significant upheavals in global capital markets, credit risk and industry defaults have become increasingly prominent challenges, significantly increasing market uncertainty.
Faced with this unprecedented transformation, Shandong High-Tech Holdings has begun to re-examine and review its own business. From an asset structure perspective, the company primarily engages in short-duration proprietary investment, making it susceptible to fluctuations in the financial cycle. Particularly during financial downturns, investment security faces significant challenges. Competition in traditional licensed businesses is intensifying, the benefits of licenses are diminishing, and profitability is insufficient to support sustained growth. Shandong Hi-Speed Holdings recognized that complacency would lead to significant future difficulties. To establish a long-term foothold in the capital market and achieve high-quality, sustainable development, proactive transformation is essential.
Planning Before Acting: Reshaping the Company’s Development Moat
Every choice in life is a crucial value judgment, and the same applies to businesses. Transformation requires a clear understanding of its own resources and the market environment. What new strategy can adapt to the changing times? How can the industrial advantages of its controlling shareholder, Shandong Hi-Speed Group, be transformed into the company’s development advantages? What kind of business can truly drive the company’s future development?
Shandong Hi-Speed Holdings, guided by these questions and starting from its own realities, benchmarked against top investment institutions in the market and conducted in-depth research into the direction of its strategic transformation. The direction gradually became clear: to pursue industrial investment.
From a practical perspective, macroscopically, research-driven industrial investment aligns with national policy guidance and market development trends. Mesoscopically, the controlling shareholder, Shandong Expressway Group, offers significant potential for industrial synergy. Microscopically, the complementary nature of long-term industrial investment and short-term cash flow investment can meet the company’s diverse needs for short-term survival and long-term development, making the company’s transformation from a short-duration proprietary investment business to an industrial investment expert a natural progression. From a long-term value perspective, the transformation to industrial investment has steadily improved its self-sustaining cash flow, led to a more rational asset allocation, and significantly improved its debt structure, enabling the company to achieve a virtuous cycle of integrated investment and financing. Looking at industry benchmarks, outstanding industrial investment institutions such as KKR, Blackstone, and Hillhouse Capital have all achieved their long-term success in the capital market by adhering to value investing and long-term investment philosophies.
Therefore, Shandong Expressway Holdings has established a strategic transformation policy of “professionalization, focus, marketization, and institutionalization,” aiming to transform into an outstanding industrial investment group, thus sounding the clarion call for strategic transformation. The company’s development strategy and management model have also undergone a comprehensive adjustment.
In terms of development strategy, the company will continue to steadily increase the proportion of industrial investment, achieving a virtuous cycle of self-development by expanding and solidifying net assets. Specifically, in terms of investment strategy, it will focus on strategic emerging industries such as new energy and new technologies, combining minority equity investments with controlling investments, breaking down the boundaries between primary and secondary markets. The aim is to find and hold high-quality assets, capturing long-term stable value growth in asset-heavy industries while also sharing in the growth value of asset-light industries.
In terms of management model, the company will implement a business unit system for investment operations, consolidating teams previously scattered across various subsidiaries under business units. This will achieve business focus, vertical integration, enhanced internal synergy, and stimulated the operational vitality of business units, making them the backbone of the group’s strategic advancement and business expansion.
The right approach determines the outcome. With the transformation direction clear, Shandong High-Tech Holdings began adjusting its business layout, reducing existing investments that deviated from the strategic direction, increasing industrial investment, and rebuilding the company’s competitive advantage.
Precise efforts achieve a breakthrough from 0 to 1
Corporate strategic transformation is a massive undertaking; finding the right breakthrough point is crucial for achieving twice the result with half the effort.
Against the backdrop of China’s industrial restructuring, green development and the “dual-carbon” strategy provide a new reference system for enterprises seeking future development directions. From the perspective of national industrial policy, in 2020, China proposed the “3060” dual-carbon target, setting clear requirements for the proportion of non-fossil energy in primary energy consumption. Under the firm goal of energy structure transformation, the clean energy industry has undoubtedly become an industry with long-term growth potential. Shandong Hi-Speed Group’s “14th Five-Year Plan” clearly identifies intelligent transportation, new energy and new materials, and green chemicals as key development sectors.
At this time, Beijing Enterprises Clean Energy Group came into Shandong Hi-Speed Holdings’ sights. Since entering the clean energy industry in 2015, Beijing Enterprises Clean Energy Group has focused on new energy power generation and clean heating, accumulating deep industry experience. Its total installed capacity of wind and photovoltaic power plants exceeds 4GW, with annual power generation exceeding 6 billion kWh. Whether in terms of professional capabilities, market position, or development prospects, it is a rare and promising acquisition target.
Opportunities are fleeting, and racing against time requires a dual-drive of professionalism and efficiency. Leveraging its keen and rapid market response capabilities and professional and efficient investment and financing skills, Shandong Hi-Tech Holdings stood out from numerous potential acquirers, investing HK$4.685 billion to acquire a 43.45% stake in Beijing Enterprises Clean Energy Group, becoming its new controlling shareholder. The entire commercial negotiation and regulatory approval process took just over three months, setting a record for the shortest time for a controlling stake transaction of a Hong Kong Stock Exchange-listed company.
Through this acquisition, Shandong Hi-Tech Holdings quickly entered the new energy sector, achieving a breakthrough from zero to one in its strategic transformation. Following the acquisition, Shandong Hi-Tech Holdings’ asset structure underwent a qualitative change. The interim report shows that as of June 2022, the company’s total assets were HK$77.65 billion, with industrial investment assets accounting for a significant 71%.
Fitch Ratings believes that given the alignment of Shandong Hi-Tech Holdings’ new energy projects with the strategies of Shandong Hi-Tech and Shandong Province, the new acquisition will enhance Shandong Hi-Tech Holdings’ competitive advantage and growth potential. With the various uncertainties brought about by the acquisition clearly and effectively resolved, Shandong Hi-Tech Holdings’ strategic transformation into an industrial investment holding group has entered a stable development phase.
A Promising Future: Building a Leading Brand in Industrial Investment
Acquisitions are just the beginning; the key lies in creating a positive cycle of post-investment empowerment and enhancing the long-term development value of the invested companies. Shandong Hi-Speed Group’s abundant new energy development resources and application scenarios have fueled market expectations for the future development of Shandong Hi-Speed New Energy.
On September 18th, Shandong Hi-Speed Group signed a memorandum of understanding to support the high-quality development of Shandong Hi-Speed New Energy. The former will accelerate the implementation of collaborative business between the two parties in five aspects, creating a new development model of “transportation + new energy” and supporting Shandong Hi-Speed New Energy to grow stronger and better. For Shandong Hi-Speed New Energy, this is undoubtedly a rare and historic development opportunity.
In terms of resource empowerment, the transportation industry has inherent advantages in developing the new energy industry. Resources such as highway ramps, toll stations, service areas, tunnels, slopes, and logistics parks can all be used for the planning, development, and application of new energy. In addition to developing distributed photovoltaic assets, low-carbon and zero-carbon service areas, low-carbon and zero-carbon industrial parks, and low-carbon and zero-carbon cities can also be built along highways.
In terms of financial empowerment, Shandong Expressway Holdings, through the subscription of newly issued shares, brought an incremental capital of 4.7 billion yuan to Shandong Expressway New Energy, significantly improving its liquidity, effectively reducing its debt ratio, and optimizing its capital structure. Simultaneously, leveraging the brand and strength of Shandong Expressway, Shandong Expressway New Energy has also opened up more diversified, faster, and lower-cost financing channels.
In terms of brand empowerment, as a leading domestic transportation infrastructure investment operator, Shandong Expressway enjoys a good reputation both domestically and internationally, possessing extremely high brand value. For Shandong Expressway New Energy, this translates to a larger market and more business opportunities.
As the empowerment effect gradually unfolds, Shandong Expressway New Energy’s business advantages in the new energy field become more apparent, with several major photovoltaic and wind power projects being launched. In October, Shandong Expressway New Energy signed a cooperation agreement with the Dingtao District Government of Heze City to invest in and construct a wind power project with a total installed capacity of 200MW and an investment of 1.1 billion yuan. In November, Shandong Hi-Speed Holdings signed an agreement with the Chengyang District Government of Qingdao City for a 300MW industrial and commercial distributed photovoltaic project with an investment of 1.2 billion yuan, and with Huantai County of Zibo City for a county-wide distributed photovoltaic project with a total installed capacity of 200MW.
While continuously empowering the development of the new energy industry, Shandong Hi-Speed Holdings is committed to building a green and environmentally friendly industrial ecosystem. Following the acquisition of Shandong Hi-Speed New Energy, Shandong Hi-Speed Holdings indirectly became the largest shareholder of Beiqing Environmental Energy (now renamed “Shandong Hi-Speed Environmental Energy”). Shandong Hi-Speed Environmental Energy is an A-share listed company primarily engaged in the resource utilization of kitchen waste, with business layouts in more than ten large and medium-sized cities across China, processing over 4,600 tons daily. With Shandong Hi-Speed Environmental Energy entering the Shandong Hi-Speed ecosystem and deeply exploring resources that complement and synergize with the company’s business, its development potential is promising.
Successful industrial investment has only one standard: whether it creates real value. With its strategic transformation into an industrial investment group, long-termism and value investing principles have taken root at Shandong Hi-Speed Holdings, becoming the fundamental logic for its business management activities.
SANGGAO Holdings stated that the next five years will be a crucial strategic development period for the company. The company will adhere to the development philosophy of prudent compliance and steady development, maintain strategic focus, and aim to become a respected industry investment expert. It will focus on the new energy sector, cultivate the green and low-carbon industry field, and strive to improve its “investment + investment management” capabilities. It will establish its brand as an industry investment expert and truly achieve high-quality and sustainable development.
