Sinochem in expansion drive

Fertiliser supplier will increase imports and spend billions to acquire plants from its parent company

Sinochem Hong Kong Holdings aims to increase sales volume by almost 80 per cent and double its outlets in three years as it taps growth opportunities offered by the government's policies to raise demand and output of agricultural products.

China's largest fertiliser supplier will realise the plan by increasing imports and spending billions in the next three years to acquire fertiliser plants from parent Sinochem Corp and building one plant itself.

Chairman Liu Deshu said yesterday that Sinochem Hong Kong was in talks with the central government to co-operate on improving efficiency of the country's agricultural logistics operations, a move that would drive up demand for farm produce and fertilisers.

The Ministry of Commerce has proposed in its 2006-10 development plan to subsidise the initiative, as part of the government's policies to raise farmers' income and domestic demand.

'The government is working on creating a common market like that in Europe ... but the work has only just begun and local protectionism has not been resolved,' Mr Liu said.

To complement the initiative, Sinochem Hong Kong aims to double its mainland sales points to 2,000 by 2008 from 1,063 last year, at an investment of 40,000 to 60,000 yuan each. This would see the company cover all 1,800 counties. Assuming it cost 50,000 yuan to set up one sales point, the company would need to spend 46.85 million yuan to realise the plan.

Chief executive Du Keping said the company would probably double its market share to 30 per cent by 2008 from 15 per cent last year by raising sales to 20 million tonnes from 11.17 million tonnes last year. About 6.36 million tonnes of last year's volume was imported, and 3.85 million tonnes self-produced.

The company yesterday posted a 52.58 per cent rise in net profit to $779.42 million for last year as sales volume rose 34 per cent.

It has stakes ranging from 25 per cent to 60 per cent in seven plants whose total gross annual capacity was 2.73 million tonnes.

It is building a 1.2 million-tonne-a-year potassium fertiliser plant in Yunnan province, in which it has a 40 per cent stake. It costs about 450 million yuan to build.

It also plans to buy three assets from its parent firm in the next three to four years, including a 20 per cent stake in A-share company Qinghai Salt Lake Potash, which has 1.5 million tonnes of annual potash fertiliser production capacity. The stake is worth 2.6 billion yuan.

A 40 per cent stake in Tianji Sinochem Gaoping chemical Engineering and a 60 per cent interest in Sinochem Shandong Fertiliser are also on its shopping list.

It planned $235 million of spending this year, 91 per cent on building the plant. Debt-equity ratio was 34.4 per cent at the end of last year and cash amounted to $270.47 million on September 30.