China’s Monarch Grooms Itself for IPO


Tongyi Beijing Petroleum Chemical Co. – the largest independent lubricant blender in China and owner of the Monarch motor oil brand – plans to conduct its initial public stock offering within two years, company officials announced last week.

The company says it will be seeking a capital infusion in order to continue its rapid pace of expansion. Tongyis sales have jumped more than five-fold since 2000 to make it the largest motor oil marketer in China. Officials said the company also hopes to partner with a foreign investor, preferably a company with base oil supply to help meet its burgeoning needs.

We are planning to go public because our emphasis is on the long-term development of our company, General Manager Li Jia told Lube Report yesterday. Of course, [a stock offering] would provide more money for investment. We also welcome more people to supervise our operation because we want to develop in a healthy way. Tongyis plans were reported in Thursdays edition of the China Daily, an English language newspaper.

An 11-year-old startup, Tongyi has grown by at least double-digit rates every year of its existence. In 2004, it recorded sales of Yuan 2.15 billion (U.S. $260 million) on approximately 300,000 metric tons. According to its own management, the company has prospered largely because of its strategy of concentrating on Chinas second-tier cities, thereby avoiding direct competition with twin national giants Sinopec and PetroChina, which focus more on the countrys largest cities.

Tongyi officials say they have also made it a priority to provide fast, reliable deliveries – no small task in a nation of Chinas size and transportation system. The company has also taken innovative steps such as advertising on national television to make its Monarch brand a nationally recognized name.

Even ahead of an IPO, Li said his company is already expanding its blending infrastructure to better access Chinas far reaches. It plans to build two blending plants by next year, each with capacity to produce 100,000 tons annually – the first in the northwest Shaanxi Province, the second in southern Guangdong Province. The company has a Yuan 80 million budget for the first plant and recently signed a construction contract to have it built in Shaanxis capital, Xian. The plant is scheduled to open in October.

Tongyi currently has two blending plants with a combined capacity of 400,000 tons. Officials say it plans to build that number to 1 million tons by 2009.

Li said management wants to list Tongyis stock on an overseas stock exchange – the company is currently in discussions with exchanges in Hong Kong and New York – out of consideration for individual shareholders.

We want to give our employees and distributors some shares which can be exchanged freely, he explained. In the mainland market, it is difficult for employees to exchange freely.

While individuals would own some shares, management hopes that a stock offering would also lead a corporate partner to buy into the company.

We want to attract world-famous petroleum companies, such as base oil manufacturing companies, Li said. We want the big power to join us. Li has said previously that securing base oil supply is one of Tongyis top priorities. Management projects sales to grow another 49 percent in 2005 to Yuan 3.2 billion.

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