China's Ningbo Haitian Group Co. Ltd., which claims to be the world's largest maker of injection molding machines, plans to raise HK$1.27 billion (US$163.4 million) in the Hong Kong stock market to fund a major expansion and pay off debt.
Ningbo, China-based Haitian wants to build three more factories in China, beef up its research and development and establish service centers in China, Russia, India and North Africa, it said in documents filed Dec. 11 related to the proposed initial public offering.
Haitian claims to have about 28 percent of China's domestic market of 50,000-60,000 presses a year, and is particularly entrenched in the country's large-tonnage market of machines with more than 500 tons of clamping force, where it has a 60 percent share.
Through the IPO, Ningbo Haitian is setting up a Hong Kong-based, publicly traded company called Haitian International Holdings Ltd., which will own 25 percent of the press maker.
In documents filed as part of the IPO, the company outlined a strategy of trying to stake a stronger position in small-tonnage machines - to be made at a new factory in Wuxi, China, that will open this year - along with focusing on higher technology in both larger machines and areas like all-electric presses.
It said it wants to acquire an overseas injection press maker skilled in all-electric technology, for example.
Haitian said it is the first Chinese firm to be able to mass-produce its own version of the all-electric machine. But the company also acknowledged that its offerings in those more-sophisticated products are not yet up to the level of top international competitors, most of which are investing in China as well.
``In respect of high-end products including medium to large-tonnage plastic injection molding machines and all-electric injection molding machines, the directors believe that the group will require additional effort and resources to reach the advanced technology level of top-tier international players,'' the company said in the filing.
Haitian had a joint venture with one of those top international competitors, Demag Plastics Group, but that ended last year.
In detail, here is what the company wants to do with the money:
* The largest chunk, HK$625.4 million (US$80.5 million), would go to help pay for three new factories, in Wuxi, Ningbo and Guangzhou, with the latter two to begin operating in 2008. It also would fund upgrades at existing plants. The Wuxi factory will have capacity of 6,000 machines a year, the company said.
* About HK$377.4 million (US$48.5 million) would pay off debt.
* Haitian wants to spend HK$132 million (US$16.9 million) for research and development, including HK$79.4 million (US$10.2 million) on a new R&D center, along with new equipment and alliances with two Chinese universities. One alliance, formed in early 2005 with the Beijing University of Chemical Technology, gave the school a 20 percent stake in an equity joint venture to develop all-electric presses, multimaterial machines and other technology. But Haitian said the products from the venture currently are not being mass-produced.
* The company would spend HK$47.7 million (US$6.13 million) to set up 15 new service centers throughout China by 2008.
The company estimates production this year will rise 19 percent to 17,400 injection presses, using nearly all of its capacity of 18,000. (The entire U.S. market, by comparison, bought 3,700 machines in 2005.) Haitian expects the Chinese market for machines to grow 9.9 percent a year until 2010, even with intense price competition.
Haitian also said it has been able to boost its international presence, with sales outside China accounting for about 30 percent of sales of 2.58 billion yuan (US$313.7 million) last year, up from 17 percent in 2003 sales of 2 billion yuan (US$242.4 million).
The company disclosed it is shutting subsidiaries in Brazil and Turkey, and delegating most marketing and sales to third-party sales agents and distributors so it can focus on product development. Such arrangements account for more than 80 percent of sales worldwide, Haitian said.
The IPO also does not include a related company, Zhafir Plastics Machinery GmbH, a new firm founded in Germany by several Haitian executives to research making premium machines.
The venture is 60 percent owned by Chief Executive Officer Zhang Jianming; 20 percent by Zhang Jianfeng, senior vice president of sales and marketing; and 20 percent by well-known German machinery executive Helmar Franz, executive vice president, who joined the firm last year.