One of China's largest plastic pipe and fittings makers, China Liansu Group Holding Ltd., said June 9 that it plans a public offering in Hong Kong to raise HK$2.16 billion (US$277 million) to expand its capacity in the country dramatically, acquire other pipe makers and beef up research and development.
Liansu, based in Foshan, said continued rapid increases in demand for plastic pipes in China will fuel an expansion of its capacity from 1.46 billion pounds to an estimated 3.53 billion pounds by the end of 2012.
China's fast-paced urbanization and development, along with other factors like limited water resources, will drive demand for plastic pipe, which is estimated to grow 12.7 percent annually through 2015, Liansu said in the Hong Kong stock market filing.
Liansu which claims it was China's largest pipe maker in 2008 operates 11 factories in China and has been adding capacity beyond its South China roots in recent years.
The firm is building new factories in Changchun and Urumqi, and plans to use IPO money to expand production at most of its existing factories and at another new plant in Shaanxi province, in northwest China.
Liansu expects to start trading on Hong Kong markets June 23.
In its filing, the firm said demand for plastic pipe in China more than doubled between 2005 and 2009, rising from 4.85 billion pounds to 11.2 billion pound, and is expected to continue growing at a compounded annual rate of 12.7 percent through 2015.
The company said plastic pipe is increasing its market share across many segments of China's infrastructure markets.
In 2005, for example, 70 percent of all drainage pipes in building were plastic but that's expected to rise to 85 percent by 2015. Similarly, for water supply systems in buildings, the percentage of plastic pipe is expected to increase from 60 percent in 2005 to 85 percent in 2015.
Plastics is gaining share because of better performance and government decisions to support more plastic piping, the firm said. Limited water resources in the country are pushing cities to upgrade municipal water and sewer systems, for example.
Liansu started in 1996, but today employs 8,000 in China. It attracted attention in the U.S. market in 2007 when it announced a plan to start exporting to the U.S., but it later shelved those plans and has since focused on the domestic Chinese market.
Liansu gave no indication in its filing that it plans international expansion, but it does intend to set aside about HK$325 million (US$41.7 million) to acquire other pipe makers, though it has not identified any acquisition targets.
About half of the money it expects to raise or HK$1.2 billion (US$153 million) would go toward expansion; HK$325 million (US$42 million) to repay bank loans; HK$108 million (US$14 million) for research and development; and HK$216 million (US$28 million) for working capital.
The firm reported 2009 sales of 5.32 billion yuan (US$780 million), and net profit of 644 million yuan (US$94 million). The firm said during its period of rapid expansion from 2007-09, when it doubled capacity, it maintained utilization of between 86 and 88 percent.
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