Automotive compounder China XD Plastics Co. Ltd. has received a $100 million investment from Morgan Stanley, allowing the Chinese firm to accelerate its expansion in return for a “significant minority ownership” stake for the investment firm.
China XD, based in Harbin, China, said Aug. 15 that the 638 million Chinese yuan ($100 million) investment from Morgan Stanley Private Equity Asia will let it speed up research and development and meet increased domestic demand.
“China is the largest automobile market in the world and continues to experience significant and growing demand for high-quality modified plastics,” said Chairman and CEO Jie Han, in a statement.
The Nasdaq-listed company has annual production capacity of 364 million pounds, and said its volume increased in the second quarter to 1.1 billion pounds, up from 65 million pounds a year earlier.
China XD had announced a major expansion plan in June, saying it planned to buy 20 production lines to expand capacity by next year, in addition to adding research equipment and constructing five factories and a new research center at its Harbin headquarters.
The company said the building project, conducted by its Harbin Xinda Macromolecule Materials Co. Ltd. subsidiary, will cost 435 million Chinese yuan ($66.9 million) and will be completed by the end of the year.
As part of the investment agreement, Morgan Stanley will get two seats on China XD's board, which will be expanded to nine people from seven. The agreement calls for Morgan Stanley to buy convertible preferred shares at $6.25 a share.
“We see the automotive modified plastics market in China as having attractive long-term growth prospects and China XD Plastics as having established itself as a strong and leading player in this space,” said Ed Huang, a managing director of New York-based Morgan Stanley Private Equity Asia.
China XD's second-quarter sales increased 42 percent to 563 million yuan ($88.2 million), with a net income of 91.9 million yuan ($14.4 million), compared with a net loss of 19.7 million yuan ($3.1 million) in the same period a year earlier, mainly from stock option compensation costs, the company said in an Aug. 15 earnings announcement.
The company said it expects sales of between 2.04 billion yuan ($320 million) and 2.23 billion yuan ($350 million) this year.
China XD's materials are used in trim and functional components of more than 70 car brands made in China, including for global suppliers such as Audi, BMW, Toyota, Buick, Mazda and Volkswagen.