Betting on a rebound in China’s construction market, Chinese private equity firm Hony Capitalhas invested $100 million in Yaohua Glass Group Ltd., continuing its consolidation of the glass industry.
The investment culminates a four-year restructuring of state assets, which began in 2007 when the government of Qinhuangdao selected Hony Capital as the sole strategic investor involved in the privatization of the city’s glass industry.
Following that commitment, Hony began working to reshape the city’s glass businesses, first taking a stake in Qinhuangdao Beifang Glass Group and then merging those assets into what is the new Yaohua Glass Group, according to Tony Li, a managing partner of Hony Capital.
Following its $100 million capital commitment, Hony holds a 60% in the glass manufacturer, while the state asset supervision and administration commission of Qinhuangdao city in Shandong Province holds a 30% stake. The remaining 10% belongs to the World Bank’s private sector investment arm, the International Finance Corp., Hony said in a statement.
Li said the money would be used as working capital while Yaohua relocates to the suburbs outside of Qinhuangdao and as the company pushes to expand its production capacity from six current lines to 13 lines at its new location.
In addition to the equity financing, Yaohua received $150 million in long-term loans, with a $50 million loan coming from the IFC and another $100 million coming from an investment that includes development banks from France and Germany, Li said.
Yaohua depends on the construction industry for about 60% to 70% of its sales, while another 5% to 10% comes from sales to the automotive industry. While Hony is most interested in increasing revenue from low-emission glass and other high-value glass products, it does expect a rebound in the construction industry, according to Li. “We think some projects will be completed in the next year because the government’s policy to develop cheap real-estate for low-income citizens,” he said.
Hony Capital, a private-equity unit of Legend Holdings Ltd. with more than CNY30 billion of assets under management, in 2003 purchased a stake in Jiangsu Glass Group, which listed its shares in Hong Kong in 2005.
China is working to control excess supply in the glass industry and is encouraging major players to consolidate by acquiring smaller, less competitive firms.
Yaohua is planning to have 13 production lines for float glass, two lines for borosilicate glass and one line for aluminosilicate glass, with annual sales above CNY5 billion (about $777 million) by the end of 2015, according to a statement.
“What is important for us investors is that they can not only produce commodity construction glass, but they can also produce higher-end glass,” said Li.
