Novo Group, a steel and coal trading company, is to transfer about 26.9 per cent of its shares listed in Singapore to Hong Kong in order to tap into the capital markets of both regions.
Novo is primarily engaged in importing iron ore from Australia and Brazil to China, and exporting Chinese steel products.
'A proportion of China's iron ore is imported through trading companies like us, so we think there are business opportunities,' said Mark Chow, chief executive of Novo.
But the company faces intense competition. Despite China's domination of the global iron ore import market, most of the business is conducted directly by large state-owned companies, said Helen Lau, a senior analyst at UOB Kay Hian. 'Even if a certain percentage of China's iron ore import business is done through traders, that market must be very competitive,' Lau said.
She also cautioned that the appreciation of the yuan would make it harder to sustain profitability in China's steel-export business.
Novo's gross profit margin fell to about 8.8 per cent in 2009 due to a plunge in steel-product prices in the financial crisis, but bounced back to 13.8 per cent this year.
China has about 700 steel mills. Novo said it engaged in business with both state-owned companies like Anshan Iron & Steel Group and small and medium enterprises.
Looking ahead, Novo chairman Dicky Yu Wing-keung said the company was preparing to expand into production.
The company bought 25,000 square metres of land in Tianjin for processing semi-finished products such as slabs and billets into finished products such as rolled coil.
Novo Group has a market capitalisation of S$115 million (HK$682 million). Revenue reached US$403 million in 2009. The company's share price closed down S$0.005 or 0.74 per cent at S$0.675 on the Singapore stock exchange.