Finance Risks Weigh China Heavy Equipment Makers
Cash is tight, competition fierce and a business slump is biting construction companies that buy their powerful excavators, bulldozers and cranes.
Nevertheless, China’s heavy equipment manufacturers are plowing forward with plans for major fund-raisers, including stock listings, and offering customers low-cost leasing plans that some call dangerous.
The domestic sector’s leader, Sany Heavy Machinery (CN:600031), for example, has set an Aug. 31 deadline for an H-share initial public offering on the Hong Kong Stock Exchange that would raise about $2 billion. Likely underwriters include Bank of America Merrill Lynch, Citigroup, CITIC International, Industrial and Commercial Bank of China, and Morgan Stanley.
“We’ll choose a time for an issuance based on the price situation,” Sany CEO Xiang Wenbo said. “We hope to sell for HK$20 [$2.56].”
Raising cash by selling a sanitation equipment business is on the agenda for Zoomlion Heavy Industry Science & Technology Development Co. Ltd. (CN:000157). The plan calls for working with private equity firms to sell the unit and beef up Zoomlion’s concrete machinery business with plans for up to 140 billion yuan ($22 billion) worth of bank loans.
Xiamen Xiagong Machinery Co. Ltd., meanwhile, on June 14 announced a project to raise up to 1.5 billion yuan from corporate bond investors.
Heavy equipment companies are counting on investors to look past the current business environment and embrace their positive forecasts for growth. But it may be a tough sell.
Zoomlion’s project has been delayed due to debates over how to divide company stakes and executive management responsibilities, said a company official.
And Sany’s financial predicaments are well-known, particularly since the company recently paid 324 million euros ($402 million) for the world’s largest concrete pump maker, Germany’s Putzmeister, amid a weakening euro zone economy.
Sany “not only needs more funding support for sales and marketing, but since acquiring Putzmeister the company has needed a lot of money to help them pay debts,” a private equity source said.
For the industry as a whole “now is not the best time,” said the source. “That Sany Heavy Machinery wants to list in Hong Kong shows how urgent their funding needs are.”
Great dealsParked on a farm outside Beijing are two mud-coated excavators whose owner, like construction contractors around China, has a personal stake in the industry’s anxiety.
“Since the second half of last year, there has been less work” for construction contractors and other heavy equipment operators, said the owner, Li Guanghao. “Then there was less and less. Today, there’s none.”
Li bought his first excavator with a standard loan tied to a 25% down payment in July 2010. He picked up the second machine last fall through a leasing plan that required no down payment and no payments for six months.