Tianhe Chemicals Floats Stock


Tianhe Chemicals last week conducted a long-awaited public stock offering expected to raise U.S. $636 million to U.S. $818 million on the Hong Kong Stock Exchange. Asias largest lubricant additive supplier said it will use proceeds to pay off debt and invest in development of additives and its fluorochemicals business.

Multiple financial news outlets reported Thursday that prices obtained for the offered stock were in the low end of the range sought by the company.

Tianhe, which is headquartered in Jinzhou, Liaoning Province, China, initially announced plans for a stock offering in 2012 but held off due to a downturn in Chinese stock markets. When the Hong Kong market picked up earlier this year, the company decided to proceed.

Tianhe is the worlds sixth-largest lubricant additive company, according to consulting firm Frost & Sullivan, which Tianhe retained to write a report for the IPO. Frost & Sullivan also said that Tianhe is one of just five comprehensive, multi-line lube additive manufacturers in the world – the others being Lubrizol Corp., Infineum, Chevron Oronite and Afton Chemical. Those four companies have for years dominated the global market for additive packages – a key part of the lubricant industry – and Tianhe has stated its goal of joining their ranks.

When first announced, Tianhe talked of raising U.S. $1 billion with this stock offering. As the event approached, officials scaled back expectations due to lukewarm interest in Hong Kong IPOs. In its prospectus the company set a target range of HK$1.75 (U.S. $0.23) to HK$2.25 for the 2.82 billion shares offered.

Citing unidentified individuals familiar with results of the sale, Business Week and the Wall Street Journal both reported Thursday that Tianhe obtained HK$1.80 per share, which would raise U.S. $654 million.

In its prospectus, Tianhe laid out its plans for funds from the offering based on an assumption that it would receive HK$2 per share. In that case, the company said, it would use 39 percent of proceeds to repay loans to the family of Chairman Wei Qi. The remaining funds would be spent equally on research and development for its two business segments – lubricant additives and specialty fluorochemicals.

Speaking specifically about the former, Tianhe said it has plans to spend HK$189 million on a production plant in Bawang Village, Liaoning Province, with capacity to make 30,000 metric tons per year of ashless dispersants; HK$773 million to develop a 100,000 t/y additive plant in Qinzhou, Guangxi Province; and HK$224 million on research and development facilities.

Tianhe reported sales revenue of RMB 2.1 billion (U.S. $338.1 million) for its lubricant additive business segment in 2013. This represented an increase of 16 percent from 2012, after revenues dipped 2 percent from 2011 to 2012. For the first three months of 2014, lube additives sales revenue was RMB 446 million, an increase of 9.8 percent from the first quarter of 2013.

Tianhes other main business is the production and sale of specialty fluorochemicals used in industries ranging from textiles to electronics to agriculture. Fluorochemicals brought revenues of RMB 2.9 billion in 2013 – or just less than 60 percent of the companys total.

Tianhe said it planned to announce results this Thursday and that its stock will begin public trading on the Hong Kong exchange Friday.

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