Zoomlion sells 80 pc stake in environmental business for 11.6 billion yuan

Industrial giant Zoomlion Heavy Industry Science and Technology has agreed to sell 80 per cent of its environmental sanitation equipment and environmental business for 11.6 billion yuan (US$1.69 billion).

The move would “significantly lower” its debt leverage ratio and strengthen its “capability for sustainable development,” the Hong Kong and Shenzhen-listed firm said in a filing to Hong Kong’s bourse on Sunday.

Its net debt-to-shareholders’ equity ratio stood at 51 per cent at the end of March.

The sale will allow the firm to focus on its industrial and agricultural equipment businesses.

It expects to book a gain of 9.13 billion yuan from the sale, based on its preliminary estimate.

The Changsha, Hunan province-based firm will retain a 20 per cent stake in Changsha Zoomlion Environmental Industry, the unit being divested.

The environmental unit booked a 9.2 per cent rise in net profit to 755.5 million yuan last year, as revenue grew 23.6 per cent to 4.5 billion yuan.

The 80 per cent stake sale implies the entire unit is valued at 14.5 billion yuan, 19.2 times its 2016 earnings.

Of the 80 per cent stake, 51 per cent will be sold to electronics and environmental protection equipment maker Infore Holding, 4 per cent to Guangzhou Investment, 21.6 per cent to Hony Investment and 3.4 per cent to investment firm Lulian Junhe.

Zoomlion posted a net profit of 66 million yuan in the first three months of 207, compared to a loss of 692 million yuan in the year-earlier quarter.

Hit by weaker demand from the construction market amid a slowdown in fixed asset investment, it had a net loss of 929 million yuan last year, and a profit of only 89 million yuan in 2015.

But Zoomlion said it expects to see demand grow again on the back of Beijing’s push on rural infrastructure construction and support for infrastructure construction as part of the new Silk Road development initiative.

It also expects farm equipment demand to continue to grow thanks to a “deepening of agricultural supply-side reform and increasing transfer of rural land,” which it said will stoke further mechanisation in agriculture.

A year ago, Zoomlion ended talks to buy United States-based cranemaker Terex Corp after failing to agree on terms, four months after making an unsolicited US$3.4 billion takeover bid.

Zoomlion shares in Hong Kong closed at HK$3.42 on Friday, 29 per cent down from its 2017 high of HK$4.79 seen on March 15.