In the last ten days of May 2003, it is announced in Sinochem International (600500)'s report on the first session of the temporary shareholders' meeting of 2003 held on May 20th that, the bill regarding to the share increasing through public raise which is planned to be confined to 135 million A shares has got passed through discussion. According to the bill, fund raised will be used to purchase 90% of the equity of Sinochem International Fertilizer Trade Co. and 100% of the equity of Sinochem International Pahama Co.,Ltd., both of which are subsidiaries of Sinochem Corp., at the price of totally 1704 million Yuan.
As the largest trade listed company in China, Sinochem International, with chemicals trade as its major business, is enjoying a reputation as the country's biggest special trader of major commodities such as plastics, rubber and metallurgical coals, etc. and as the leader in domestic chemicals shipment sector. At present, the company boasts market shares of imported Acetone and Methanol that are 20% more and 13% more or less respectively. With the sales in DOP and DEG dominating its business in Fujiang Province and the city of Wenzhou, Sinochem International also owns an agricultural medicine distribution network established in Northeast and North China, covering more than 110ditributors at county level.
Since Sinochem International went to the public, through the rotational remedy of its three-year plan and timely adjustment of the use of fund raised, it has basically set three major core business, namely, chemicals marketing, chemicals logistics and fine chemicals R&D. After its relocation into Shanghai, the company has tried to get close to clients and the market by taking advantage of Shanghais commercial environment as a center of finance , trade , shipment and information, and its business environment has got improved a lot. What we should concern is that the PTMEG project on which the company has poured a lot, will play the role as a stable source of its sustainable profit growth.
According to the plan, Sinochem International hopes to purchase at a price of 1704 million Yuan, which consists of raised funds and own funds, which are approximately 1.2 billion Yuan and 120 million Yuan respectively. If necessary, a bank loan is also required.
A full-scale chemical industrial enterprise is to be born
Although Sinochem International has always been committed to building itself into an full-scale chemical industrial enterprise through the permeation into downstream chemicals logistics and upstream fine chemicals R&D, it is still hard for the company to realize the substantial growth only with chemical industrial business, despite of the expected stable development of Chinese chemical industry market in the future, since Sinopec enjoys a dominate status in petrochemical market.
It is obvious that the fertilizer business of Sinochem Corp., the parent company of Sinochem International, has the most possibility to become the goal of Sinochem International for business expansion. As the world largest agricultural country, China has a population of 1.3 billion and 800 million farmers, who constitutes the strongest foundation for the fertilizer market. It is estimated by inside experts that, it is possible for the demand for fertilizer to keep a growth rate at a speed of 20% in quite a long time, as long as China maintains a growth rate of GDP at 7% above in the future. And maybe, the market will be even more stable than chemical industrial market.
As a matter of fact, it is easy for us to make out the development path of fertilizer among the business components of Sinochem Corp.. In early and mid 1990s, almost all the profit earnings came from oil trade. However, in 2002, fertilizer became the new source of profits of the Corp. with its earnings exceeded that of oil for the first time.
It's said that , the fertilizer assets of the parent company, which is planned to be purchased , is a matured asset of the Corporation at a high grade. As the largest fertilizer importer and exporter in China, Sinochem International Fertilizer Trade Co. possesses a import volume of fertilizer taking up 60% of that of the whole country, 25% of which is potash fertilizer. By the end of 2002, Sinochem International fertilizer has established 15 branches and 89 distribute centers in 14 major provinces in China, with its sales scope covering areas such as Northeast, North China, East China, and South China, etc. The main business of Sinochem Pahama Co.,Ltd., the sole-founded foreign enterprise established by Sinochem Corp., is purchasing fertilizer from foreign suppliers and organizing foreign transport. In comparison with 2001, 2002 has witnessed a 86.98% of increase in the major business earnings of Sinochem Fertilizer Co. and Sinochem Pahama Co.,Ltd., a 70.26% of increase in its major business profits and 64.28% in net profits, showing a strong momentum of growth and promising prospect of profit earnings.
After purchasing, Sinochem International will no longer purely rely on its chemical industrial business, but will concentrate on tapping into the spacious fertilizer market. Since the fertilizer assets purchased this time has a value chain with the integration of trade, distribution and production of fertilizer, Sinochem International is expected to possess half of the Chinese fertilizer import market, thusly tuning into one of the Chinese largest suppliers of chemical and agricultural products integrating upstream, midstream and downstream into a whole body. In addition, the combination of the company's original business and the to-be-purchased assets will realize a synergy, that is "one plus one is more than two". Specifically speaking, the company intends to cut business expenditures through the integration of part of existed points of distributing network and storage and logistics facilities, and to increase sales through developing agricultural and chemical business of Sinochem International such as pesticide, fertilizer and agricultural film, etc via the distributing network of Sinochem Fertilizer. Meanwhile, the company's capability of engaging in overseas and international business will be largely sharpened by Sinochem Pahama with its gearing to the global fertilizer market. Sinochem International is expected to take a key step of its spanning development.
are there other meanings?
Sinochem Import & Export Corporation, the parent company of Sinochem International has got in the list of Forbes World Top 500 for 13 times successively and ranked 15th among the world largest trade enterprises in 2001. Sinochem International is the only listed company among subsidiaries of Sinochem.
According to the comprehensive estimation of data of Sinochem International and the two fertilizer companies in 2002, after the merger, Sinochem International will witness its increase of gross assets from 3.08 billion Yuan to 9.07 billion Yuan, the net assets from 1.56 billion Yuan to 2.71 billion Yuan, net profit of major business from 600 million Yuan to 1.38 billion Yuan. In addition, the EPS it is expected to decrease due to the equity expansion but to increase from 0.466 Yuan to 0.53 Yuan. The P/E of the assets to be purchased is 7.57, which is far lower than average 48 times P/E of domestic trade listed companies and is considerably reasonable in comparison with the cost spent by some overseas listed companies in purchasing. The determination of Sinochem to strengthen Sinochem International is well demonstrated through the purchase, the type of which is rarely seen among domestic listed companies.
However, Sinochem wants more. In 2002, National Audit Office of the People's Republic of China gave official acknowledgement to the finish of the assets clearing and auditing after 8 months of audition over Sinochem, who then witnessed a increase by a large margin of its sales and earnings in the first quarter of 2003, hitting a record high.
It is said that, if the purchase is successful, then high-grade assets of other business of Sinochem like oil business will also be absorbed by Sinochem International. Although, owning relatively less oil resources than Sinopec and TION, Sinochem still enjoys a significant status in the oil trade sector in China and the East Asia as a whole. Despite of the fact that the exclusive right of Sinochem in oil import and export has got weakened because of the entrance of other petrochemical enterprises like Sinopec, Sinochem has developed a spacious entrepot trade market in areas such as Taiwan, Thailand and even Croatia. Last year, the volume of entrepot trade made by Sinochem in Taiwan has reached 5 million tons, accounting for over 14% of the market share of Taiwan. Most of the company's important clients are powerful enterprises there such as Taiwan Plastics. Therefore, Sinochem International is expected to take a big stride with the vigorous support of Sinochem, who in turns can also expect a lot from the pass of the bill regarding to the extra issuing and the purchase of fertilizer business of Sinochem International from the parent company, as far as its long term of integration and merger are concerned. Whether Sinochem is planning to go to public completely through Sinochem International is still wait to tell.
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