Zhuhai Zhongfu to sell stake to PE firm at higher prices
By Zhang Ran (China Daily)Updated: 2007-04-16 13:46
After suspending share trading for four days as required by
stock market regulations pending an announcement, Zhuhai Zhongfu Enterprise Co
Ltd said on March 24 that it will sell a controlling stake to a foreign
strategic investor.
When trading resumed, the company's share price rose to the daily ceiling of 10 percent for three consecutive days and the low-profile company overnight found itself a focus of the market.
The Shenzhen-listed bottle maker becomes the first company in 2007 to have a foreign strategic investor that is willing to pay a much higher price than its book value.
It is reported that CVC Capital Partners Asia Pacific, an Australia-based private equity fund, will pay 1.65 billion yuan, or 8.27 yuan per share, for a 29 percent controlling stake in Zhuhai Zhongfu.
The high premium is beyond many analysts' expectations the offering price is three times its book value and a 21 percent premium over its closing price of 6.84 yuan before the announcement.
"CVC Capital has strong confidence in the company's solid fundamentals and that is the key reason for it to bid such a high price," an industry insider close to the deal tells China Business Weekly.
In 2006, Zhuhai Zhongfu recorded sales revenue of 2.3 billion yuan. Net profit hit 104 million yuan, an increase of 50 percent over the previous year. Its sales revenue in 2007 is projected to be 2.9 billion yuan and rise to 4.1 billion yuan in 2010.
The Zhuhai-based firm is a leader in manufacturing polyethylene terephthalate (PET) bottles. It has been a major vendor for Coca Cola and Pepsi Cola in China for over two decades, supplying around 40 percent of Coca Cola's needs in the country, 15 percent of Pepsi Cola's and 16 percent of Union President's.
"The total volume of soft drinks in China is expected to see an increase of 15 percent in five years, and for market leaders, hopefully their production capacity is able to rise as much as 20 percent," says Chen Yuhui, an analyst with Orient Securities.
Hikes in international oil prices beginning in 2003 directly increased the price of raw materials used to produce PET bottles, causing a slump in the industry. Zhuhai Zhongfu felt a big profit squeeze in 2004.
With oil prices stabilizing, the PET manufacturing business is expected to recover from the downturn.
The company recently inked a 10-year contract with Coca Cola. The lock-in of the partnership ensures it stable growth along with Coca Cola's expansion in China.
A world-class R&D center
Zhuhai Zhongfu has a nationwide footprint of 84 plants spreading over 30 cities, while its biggest competitor, the Shanghai-based Zijiang Enterprise Group, covers 18 cities with plants mainly located on eastern China.
"Unlike Zijiang, which has diversified investments in various businesses such as real estate, Zhuhai Zhongfu is devoted to the manufacturing of PET bottles and development of PET technology, and that made it more attractive to CVC Capital, which wants to focus its investment in bottle manufacturing," the anonymous industry insider says.
Zhuhai Zhongfu is developing an innovative three-layered PET bottle for pasteurized beer, the use of which is expected to show 8 percent growth annually in China.
Currently few beer manufactures use PET bottle for packaging in China. But in the Republic of Korea, the market share of PET bottles used for beer is 17 percent, and the figure is rising rapidly.
With the strong growth in Chinese consumption and the coming of the 2008 Olympic Games, China's beer market may increasingly adopt PET packaging and bring returns to Zhuhai Zhongfu, which has invested heavily in developing the technology.
To date, the company has signed contracts with Union Brewery and Hebei province-based Lanbei to supply PET bottles for their beer packaging, and is in talking with Tsingtao Beer and Budweiser, according to an industry source.
Huang Lefu, aged 65, is the founder and president of Zhuhai Zhongfu. A fisherman when he was young, he founded the company in 1982.
After selling a major stake to CVC Capital, Huang will keep 6 percent stake in his company.
"I want to introduce strategic investors to let the company step on to a higher stage," Huang said in an interview with China Securities Journal in March.
According to Huang, CVC Capital will keep the current management team. Huang Chaohui, Huang's son, will be the general manager of the company.
(For more biz stories, please visit Industry Updates)
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