China's top fighter jet maker is merged with AVIC subsidiary, to become a shareholding public company

AVIC Zhonghang Electronic Measuring Instruments Co Ltd, a subsidiary of Aviation Industry Corp of China (AVIC), a state-owned aerospace and defence conglomerate, announced late Wednesday that it would purchase all the equities of AVIC Chengdu Aircraft Industrial Group Co (CAIG), the J-20 stealth fighter jet manufacturer, by issuing shares to AVIC.

The deal is worth 17.44 billion yuan ($2.45 billion), according to the filing that Zhonghang Electronic sent to the Shenzhen Stock Exchange.

Shares of Zhonghang Electronic, a mechanical and industrial engineering company based in Xi'an, capital of Northwest China's Shaanxi Province, soared 20 percent at the opening of trading on Thursday.

CAIG, the top fighter jet maker is expected to get listed on the A-share market via the transaction deal. By tapping the capital market, domestic aerospace equipment sector is expected to embrace rapid development, industry analysts said.

Zhonghang Electronic will become a leader of the A-share military industry sector after the transaction, and the deal is likely to ramp up the valuation of the entire defense sector, TF Securities said.

For CAIG, its market capitalization will reach 200 billion yuan after it goes public through this so-called backdoor listing. The company's net profit is expected to reach 4 billion yuan this year, according to a TF Securities forecast.

Formed in 1958, CAIG develops and produces fighter jets and it has been a key manufacturer of civilian aircraft parts too.

Some of its combat models include the J-5, J-7, J-10, and Xiaolong. The most eye-catching product is the advanced fifth-generation stealth fighter jet J-20. As the world's third fifth-generation stealth fighter that has entered mass production, the J-20 model could represent China's top defense capability.

The firm has also teamed up with AVIC Chengfei Civil Aircraft to develop parts for C919, China's first domestically produced large passenger plane.

Pan Helin, a research fellow with the International Business School, Zhejiang University, told the Global Times on Thursday that this acquisition through shares-buying is of great significance for CAIG as it will embrace the share-holding operating system. "In the future, its stock value will be revalued in the stock market, and it will also obtain a financing channel, which will broaden the prospects for its future development."

In addition, the firm could help build up a large aircraft manufacturing sector on the A-share market after the backdoor listing by strengthening synergy with its peers, jointly contributing to the consolidation of China's domestic aircraft industrial chain, according to Pan.

The acquisition is just a miniature of AVIC's assets integration moves over recent years.

Last year, AVIC (Chengdu) UAS Co, producer of the Wing Loong unmanned aerial vehicle (UAV), went public on the Shanghai Stock Exchange's sci-tech innovation board.

The government will inject high-quality assets, such as profitable innovation and high-tech related businesses, into listed companies owned by centrally administered state-owned enterprises (SOEs) to further strengthen the content of its three-year action plan (2020-22) for SOEs, and bolster the real economy, the State-owned Assets Supervision and Administration Commission of the State Council, the country's state-asset regulator, said in May last year.

The accelerated pace of SOE reform will boost sentiment across the sector, according to a research note by CITIC Securities.