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Yunnan Tobacco Merger To Create Industry Giant

Jasmine Wang – SCMP | Updated on Aug 26, 2008

Two Yunnan-based tobacco companies, Hongyun Group and Honghe Group, agreed to merge yesterday, forming the world’s fourth-largest tobacco firm and the biggest on the mainland, state media reported.

The deal, pending government approval, will form a new entity with annual sales volume exceeding 4.5 million boxes of cigarettes, ranking only behind Philip Morris International, British American Tobacco and Japan Tobacco in the world, China News Services reported yesterday, citing tobacco bureau officials.

“The move is significant to the monopolised industry,” said an analyst at a local brokerage covering mainland companies. “It shows the government’s intention to nurture giants and then encourage them go out as Chinese tobacco brands are not that well known abroad.”

He said creating a giant could boost the price of Chinese cigarettes overseas.

Hongyun and Honghe could not be reached for comment yesterday.

The price of cigarettes on the mainland, which has the world’s largest smoking population, are controlled by the State Tobacco Monopoly Administration whether they are locally made or imported.

More than 80 per cent of the mainland’s 320 million smokers consumed domestic brands, although the market share of global giants was growing, said Mao Zhengzhong, an economic professor at Sichuan University who studies smoking control on the mainland.

Mr Mao said Yunnan was one of the biggest tobacco-producing provinces. It is home to three major tobacco firms, Honta Group, which makes the popular “Hongtashan” brand and was once No1 on the mainland, Hongyun and Honghe.

Established in 2005 after waves of mergers, Hongyun produces more than 3 million boxes of cigarettes under the brands of “Yunyan” and “Lesser Panda” each year through its five plants, according to the company’s website.

Last year, it had turnover of 29 billion yuan with net assets reaching 31 billion yuan.

Honghe, which produces cigarettes under its own name, has an annual production capacity of 1.6 million boxes.

Established in 1985, Honghe generated revenue of 16 billion yuan last year.

Hunan is another major province, where the Baisha Group that owns the popular “He” brand is located.

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