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The M&A race in China’s titanium dioxide industry
appears to be heating up despite the recent turbulence in China’s stock market as
leading producer CNNC TD announced on Tuesday (July 14) that it was negotiating
a deal worth over RMB200 million (USD32.7 million).
The company’s most likely target is rival Chinese producer
Shandong Dawn, insiders familiar with the matter have disclosed to CCM.
CNNC TD first gave an indication that it was planning a
deal on July 7 when it announced a trading halt on its stocks, citing plans for
a major activity. All four of China’s listed TiO2 companies are now under
trading halts.
On Tuesday, the company applied to extend its trading halt
on the grounds that its negotiations were ongoing and the outcome remained
uncertain. It also specified that the deal was related to investing over RMB200
million in China’s TiO2 industry.
In April, CNNC TD was rumored to be considering a deal
with Shandong Doguide Group, but CCM has heard from several sources that the
company’s target is now Shandong Dawn.
Shandong Dawn is a major TiO2 producer in China and
claims to have assets worth up to RMB2 billion. Though this figure may in
reality be lower, CNNC TD is highly unlikely to gain a controlling interest in
Shandong Dawn for RMB200 million and a deal for a 10-20% stake in the company would
be more realistic at this price.
Yang Xun, senior analyst at SunSirs, commented: “This
kind of deal [acquiring a smaller stake in the company] would be a win-win for both
parties because CNNC TD can gain shares and the target company can raise
capital.”
Shandong Dawn also possesses a number of qualities
that would make it a useful investment for CNNC TD. The company is one of China’s
leading exporters of TiO2 thanks to the high quality of its products compared
to its rivals and its location in the coastal city of Yantai in Shandong
Province. Shandong Dawn also enjoys a good reputation for quality in the
domestic market.
According to Xun, CNNC TD is likely to be looking to
invest in companies with “unique advantages such as being located near harbors,
having overseas markets, owning their own ore resources, or possessing clients
groups in special regions.”
Some have speculated that CNNC TD may be using this
possible merger to announce a trading halt and avoid the fallout from the
ongoing problems in China’s stock market, but Dean Wu, editor of CCM’s TiO2
E-Journal, reasons that this is unlikely:
“CNNC TD’s trading halt has certainly come at a
convenient time, but many Chinese companies have halted trading without giving
such specific reasons,” said Wu. “If the deal now turned out not to be genuine,
CNNC TD would be subject to severe punishment. I don’t think that it needs to
take such a risk.”
“What’s more, we have had very specific information
from several sources as to CNNC TD’s likely target, and investing in this
company makes sense from a business perspective,” Wu added.
If the deal is confirmed, it will be the second major
deal involving a listed Chinese TiO2 company in as many months after Henan
Billions finalized its merger with Lomon on June 5. Jilin Gpro is also
strongly rumored to be in
the process of acquiring Jiangsu Zhentai, but no further details on this
deal have been announced so far.
CCM will continue following this story closely and will
provide further updates as the situation develops in E-Journal, our real-time
intelligence service for China’s TiO2 market. For more information about
E-Journal, click
here or email econtact@cnchemicals.com.
-Ends-
Additional data and analysis are available on request.
For more
information, please contact:
Dominic
Morgan
PR &
Marketing Executive, CCM
T: +86
13622236593
E: dominic.morgan@cnchemicals.com
About CCM:
CCM is the
leading provider of market intelligence on China’s agricultural, food,
biotechnology, chemicals, and pharmaceutical markets. Based in Guangzhou, China, CCM provides a host of international clients,
including Shell, Coca-Cola, ExxonMobil, DuPont, Syngenta, Bayer, Monsanto, and
Tate & Lyle, with a variety of intelligence solutions, from market data,
industry newswires and market research reports, to company profiles and
consulting solutions. CCM is a brand of Kcomber Inc.
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