Huazhong presses ahead with share sale
Rising borrowing costs and new market opportunities at home have prompted mainland car-parts supplier Huazhong Holdings to ignore weak market sentiment and launch a public offering of its shares today.
The company expects net proceeds of HK$192.6 million if the pricing hits the middle of its HK$1.2 to HK$1.5 range. It is one of five mainland IPOs launching public subscription to its shares in the last two trading days of the year.
Huazhong Holdings will use more than half of the proceeds - about 115.5 million yuan (HK$141.09 million) - to build new plants on the mainland. It wants to boost production hours by almost a third - from 1.02 million machine-hours to 1.34 million by December 2013.
The company makes and supplies internal and external structural and decorative car parts, moulds and air conditioners and liquid tanks. It has 11 factories and 2,300 staff which produce parts for companies including FAW-Volkswagen Automotive and Shanghai General Motors.
Huazhong Holdings chairman Zhou Minfeng said the expansion plan would allow the company to meet increasing demand at home, and fuel revenue growth. Its after-tax profit rose more than 50 per cent to 52.5 million yuan in the first half of this year, up from 34.2 million yuan a year earlier.
Zhou said 10 per cent of the IPO proceeds - about 15.5 million yuan - would be earmarked for acquisitions, and another 10 per cent would be used for working capital.
The company's gearing ratio was 78.9 per cent in June, but financial director Zhang Meilan said it planned to cut that by boosting revenue and reducing borrowing rather than by paying it off with the IPO proceeds. Net current liabilities stood at 54.2 million yuan as of June 30, down from 202.7 million yuan in 2008, when the firm was aggressively expanding. Zhang also said the firm would have to tackle increasing borrowing costs and tax spending.
115.5m yuan
Huazhong plans to use this much of its IPO proceeds to build new factories as it tries to boost production hours by almost a third
