HONG KONG (June 11, 11:25 a.m. ET) -- One of China’s largest plastic pipe and fittingsmakers, China Liansu Group Holding Ltd., said June 9 that it plans a public offering inHong Kong to raise HK$2.16 billion (US$280 million; 1.89 billion yuan) to dramaticallyexpand its capacity in the country, acquire other pipe makers and beef up research anddevelopment.
Liansu, based in Foshan, Guangdong province, said continued rapid increases in demand forplastic pipes in China will fuel an expansion of its capacity from 661,000 metric tons toan estimated 1.6 million tons by the end of 2012.
China’s rapid urbanization and development, along with other factors like the country’slimited water resources, will drive an estimated 12.7 percent annual growth in plastic pipedemand in China through 2015, Liansu said in the Hong Kong stock market filing.
Liansu, which said it was China’s largest pipe maker in 2008, has 11 factories throughoutChina, and has been adding capacity beyond its South China roots in recent years.
The firm is currently building new factories in Changchun, Jilin province and Urumqi,Xinjiang Uyghur Autonomous Region, and plans to use the IPO money to expand production atmost of its existing factories and at another new facility in Shaanxi province, innorthwest China.
Liansu said it expects to start trading on the Hong Kong markets on June 23.
In its filing, the company said demand for plastic pipe in China more than doubled between2005 and 2009, rising from 2.2 million metric tons to 5.1 million tons, and is expected tocontinue 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’sexpected to rise to 85 percent by 2015. Similarly, for water supply systems in buildings,60 percent of the piping was plastic in 2005 but that’s expected to be 85 percent in 2015.
Plastics is gaining share because of better performance and government decisions to supportmore plastic piping, the firm said. Limited water resources in the country are pushingcities to upgrade their municipal water and sewer systems, for example, Liansu said.
Liansu started in 1996, but today has 8,000 employees throughout China.
It attracted attention in the U.S. market in 2007 when it announced a plan to startexporting to the United States, but it later shelved those plans and has since focused onthe domestic Chinese market.
The firm gave no indication that it plans international expansion in its filing, but didsay it planned to set aside about HK$325 million (US$41.7 million; 285.1 million yuan) toacquire other pipe makers. It said it has not identified any acquisition targets.
The firm said about half of the money it anticipates raising, or HK$1.19 billion (US$150million; 1.04 billion yuan), would go toward capacity expansion. It plans to use HK$325million (US$41.7 million; 285.1 million yuan) to repay bank loans, HK$108 million (US$13.8million; 94.7 million yuan) for research and development and HK$216 million (US$27.7million; 189.3 million yuan) for working capital.
The firm reported 2009 sales of 5.32 billion yuan (US$780 million), and a net profit of 644million yuan (US$94.2 million). The firm said during its period of rapid expansion from2007 to 2009, when it doubled capacity, it maintained capacity utilization at between 86and 88 percent.