After years of preparation, automotive compounder China XD Plastics Co. Ltd. earlier this year achieved its goal of becoming China's first plastics material company listed on a U.S. stock exchange.
Chairman and CEO Jie Han in Harbin, China, and Chief Financial Officer Taylor Zhang in New York recently spoke with Plastics News in a telephone interview, offering insight into the company's performance, expansion plans and market trends in China's auto industry.
Q: Plastics News first reported Xinda's plan of being listed on a U.S. stock exchange back in 2006. The company eventually started trading on the over-the-counter Bulletin Board in January 2009 through a process called reverse acquisition. Please share with us your experience in making this happen.
Han: I always believed that going public is an essential process for a company to grow in both scale and degree of globalization. The U.S. listing is a good stepping stone for XD to enter the global market. It certainly also helps provide funding for the company's growth.
January 2009 was the rock bottom of the ongoing global financial crisis. But the costs associated with having a U.S. stock exchange listing were also at an all-time low in many years. Since XD was ready to go public in terms of scale, transparency and market prospects, we weighed the pros and cons and went ahead to grab the opportunity.
Reverse acquisition was not only a convenient technique we used to go public, but also an effective process to improve our team and accumulate experience.
Q: With the financial crisis, especially the collapse of the U.S. stock market in September 2008, some question whether a U.S. listing remains attractive compared with emerging markets, such as China. How would you describe and evaluate XD's performance and market response during the past seven months?
Han: It takes time for investors to get to know a new company. In general, our stock (CXDC.OB) has been on a positive, upward trend.
Zhang: Going public is by all ways a long-term plan. Just like the previous financial crises, the current one will eventually be over. The U.S. and global economy will recover and rebound. Only those prepared will be able to take advantage of the next growth cycle.
During the past six months, we've seen improved capital flow, among other things. With an excellent management team and high growth potential, we are confident that XD will gain more popularity in the investment community.
The U.S. listing benefits the company in many ways. It supports the company growth by providing funding. We are also able to attract more global talent with such incentives as stock options.
Q: How do you position the company in China's market for supplying compounds for automotive applications? Are you competing with multinational suppliers on high-end materials?
Han: China's fast-growing auto market and massive consumption base spur the demand for plastic resin and compounds. With an independent R&D institute, XD currently owns 122 material certifications from automakers, covering interior and exterior auto parts. Our products are positioned to replace high-value-added imports. Compared to MNC products, we offer more competitive prices and service with guaranteed high quality.
Q: As multinational players start to make resin and compounds in China, is XD losing its low-cost production advantages?
Han: Compared to those transplants within China, XD's production cost advantages come from 1) large scale (154 million pounds annually), 2) low-cost feedstock/materials from large-scale Chinese petrochemical suppliers and 3) optimized management.
Q: XD is headquartered in northeast China, a traditional auto production base. What steps is the firm taking to cover other important regional markets within China? Besides the domestic market, is Xinda exporting to overseas markets?
Han: We've made a milestone progress by entering the north China market this year. We have signed a distribution agreement with Tianjin Huapu Co., an important partner with extensive network in the region. The north region accounts for approximately 10 percent of the total market demand for automotive compounds in China, while northeast accounts for about a quarter.
We plan to enter the east China region (particularly the Yangtze River Delta) in 2013.
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