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Topics Construction, Mergers & Acquisitions, Pipe/Profile/Tubing, Extrusion, China
KUNMING, CHINA — Two plastic pipe makers in China are planning initial public offerings to fund nationwide expansions, hoping to tap into growing demand from urbanization and better position themselves for an expected consolidation in the country’s pipe sector.
Both Puretown Environmental Technology Co. Ltd. in Kunming, Yunnan province, and Dongxin Plastic Co. Ltd. in Liaocheng, Shandong province, said at a recent industry conference that they are planning stock listings to raise up to 500 million Chinese yuan ($80.9 million) each.
Puretown’s plans appear more advanced, with the company looking to apply for its 500 million yuan IPO later this year in the Shenzhen stock market and go public next year, its top executive said in an April 3 interview at the China Plastics Piping Association annual conference in Kunming.
The company, which currently has two factories in Kunming and one in Jiangsu province, would use the money to set up a nationwide network, building four new factories in Shandong province and the cities of Shenyang, Xi’an and Guangzhou by 2017, said Puretown Chairman Zhou Tingchang.
A Dongxin executive, meanwhile, said in an interview on the sidelines of the CPPA conference that his company plans an IPO in the Shenzhen market by 2016 that would raise between 300 million yuan ($48.6 million) and 500 million yuan.
General Manager Wang Quanlong said Dongxin has not decided where it would build its new factories, saying it depends partly on which local governments agree to buy its pipes and related equipment, like plastic inspection well chambers.
Both companies pointed to continued strong increases in demand for infrastructure spending, the expansion of rural drinking water systems and housing demand from urbanization.
China’s government projects that 80 million Chinese, roughly the population of Germany, will move from the countryside to cities by 2020.
“The next year 10 years is the greatest chance for municipal pipeline construction,” Zhou said.
While the Chinese plastic pipe industry has significant overcapacity, Zhou said his company sees opportunities to expand as the inspection well chambers it manufactures for pipelines switch from brick to plastic.
About 95 percent of the pipeline inspection well chambers in China are brick, but mirroring international trends, China’s pipeline system will begin switching to plastic chambers, Zhou said.
The plastic versions are lighter, saving transportation costs, and have a lower environmental footprint to manufacture than brick, Puretown claims.
Puretown, which was established in 2003, said it has seen its sales grow from 70 million yuan ($11.33 million) in 2010 to 400 million yuan ($64.8 million) last year. The company has 360 employees, including 125 with college degrees, and has research partnerships with several universities, Zhou said.
It opened a 130 million yuan ($21.1 million) factory in Wuxi, Jiangsu province, in November, with six extrusion lines and four injection molding machines, its first factory outside its headquarters in Kunming.
Each of the planned four new additional factories would be an investment of about 150 million yuan ($24.3 million), Zhou said. He spoke during a tour of his factory, held in conjunction with the CPPA conference.
Beyond the planned IPO, Zhou said the company has also received 140 million yuan ($22.7 million) in venture capital funding from four separate companies.
Both companies said they wanted to get ahead of a wave of increasing consolidation in China’s plastic pipe industry.
CPPA said in a review of the industry at its conference that larger companies in the industry are developing more quickly and smaller firms are facing more troubles.
Beijing-based CPPA noted there were some bankruptcies last year, even as overall plastic pipe production rose 10 percent, to 12.1 million metric tons. China’s largest plastic pipe maker, Lesso Group Holdings Co. Ltd., said last year it expected more consolidation.
Wang said he believed the next three years would see major consolidation, as smaller and medium-size enterprises experience more trouble getting access to capital, and with the improved transportation networks in China helping larger companies.
“In this transition period, many SMEs face problems of finance, of rising labor costs, and having the best technology,” he said.
He said Dongxin emphasizes research and development, and is currently developing a 1.6 meter diameter PVC drainage pipe that it believes will be the largest diameter pipe of that kind in the world. It will be built on machines that the company has patented, Wang said.