Jiangsu Sanfangxiang Industrial Co., Ltd. (hereinafter referred to as Sanfangxiang, 600370.SH) will acquire Jiangsu Hailun Petrochemical Co., Ltd. (hereinafter referred to as Hailun Petrochemical) and inject new businesses such as bottle-grade polyester chips.
On April 15, the China Securities Regulatory Commission’s Listed Company Mergers, Acquisitions and Reorganization Review Committee held its 12th meeting of the year The meeting reviewed Sanfangxiang’s issuance of shares to purchase assets and raise supporting funds as well as related-party transactions.
Sanfangxiang stocks will be suspended from trading today, and will apply for resumption of trading after receiving the review results.
The announcement shows that Sanfangxiang plans to purchase Hailun Petrochemical, which is jointly held by Sanfangxiang Group, Sanfangxiang International Trade, Shanghai Youchang and Shanghai Huma, by issuing shares. 100% equity, transaction price is 7.65 billion yuan.
Sanfangxiang was established in 1994. Its main business is textile, chemical industry and thermoelectricity. It is one of the top ten enterprises in the domestic printing and dyeing industry. Previously, the unit prices of cotton and dyes increased, which to a certain extent compressed the profit margins of Sanfangxiang.
Sanfangxiang Group is the controlling shareholder of Sanfangxiang. The company was founded in 1981. It is a chemical industry group covering PTA, bottle-grade polyester chips, polyester fiber and other businesses. . Last year, Sanfangxiang Group ranked 119th on the list of China’s top 500 manufacturing companies.
Hailun Petrochemical is mainly responsible for the more profitable bottle-grade polyester chips and PTA business of Sanfangxiang Group. Sanfangxiang Group holds 88.5% of Hailun Petrochemical.
Bottle-grade polyester chips are widely used in bottle packaging containers, such as manufacturing food and beverage packaging bottles.
The announcement stated that this transaction is to inject the group’s relatively complete chemical industry chain such as PTA and bottle-grade polyester chips into Sanfangxiang. This will help Sanfangxiang build a chemical industry chain platform based on the group’s strength, and help it improve its business scale and profitability.
After the transaction is completed, Sanfangxiang will become a large-scale comprehensive chemical enterprise integrating the production and sales of bottle-grade polyester chips, the production and sales of PTA, and printing, dyeing and finishing.
Sanfangxiang’s total assets and net profit will also increase significantly
Audit data shows that after the transaction is completed, Sanfangxiang’s total assets will increase from 1.803 billion yuan to 21.24 billion yuan, an increase of nearly 11 times; net profit will increase from 70.1502 million yuan to 706 million yuan, an increase of 9 times.
But there are also risks in this transaction because Hailun Petrochemical has a high asset-liability ratio.
The announcement shows that the industry in which Hailun Petrochemical operates is a capital-intensive industry, which requires a large amount of working capital during daily operations. Hailun Petrochemical’s business has developed rapidly in recent years, and most of its operating funds mainly rely on bank loans and commercial credit, resulting in a high asset-liability ratio.
As of the end of August last year, Hailun Petrochemical’s asset-liability ratio was 80.49%.
Before the acquisition, Hailun Petrochemical had just turned a profit. In 2017, Hailun Petrochemical still suffered a loss of 20.864 million yuan; in 2018 and the first eight months of 2019, Hailun Petrochemical achieved net profits of 696 million yuan and 657 million yuan respectively.
The announcement shows that after Sanfangxiang acquires Hailun Petrochemical, its total liabilities will increase from 201 million yuan to 15.846 billion yuan, an increase of nearly 78 times.
While issuing shares to purchase assets, Sanfangxiang also plans to non-publicly issue shares to no more than 35 investors, raising supporting funds of no more than 800 million yuan.
After deducting relevant expenses from the funds raised this time, 400 million yuan is planned to be used to invest in Hailun Petrochemical PTA technical transformation project, and 305 million yuan will be used to supplement working capital.
PTA, purified terephthalic acid, is one of the raw materials for the production of polyester (PET). Its main use is to produce polyester fiber, polyester bottle flakes and polyester film, which are widely used in various aspects of the national economy such as chemical fiber, light industry, electronics, and construction. </p
