
Hony invests $100m in Chinese glass maker
Hony Capital has agreed to pay $100 million for a 60% stake in China Yaohua Glass Group, as part of its ongoing role in consolidating the glass-making industry.
Four years ago, the private equity firm was selected by the government of Qinhuangdao in Shandong province as the sole strategic investor involved in the privatization of the local glass companies, The Wall Street Journal reported. It took a stake in Qinhuangdao Beifang Glass Group and then merged those assets into Yaohua, said Tony Li, a managing partner at Hony.
The state asset supervision and administration commission of Qinhuangdao and the International Finance Corp. (IFC) are the other investors in Yaohua, with 30% and 10%, respectively. Yaohua has also received $150 million in long-term loans - $50 million from IFC and the remainder from a group of banks coordinated by IFC.
"The investment in Yaohua is a strategic decision by Hony Capital, and Hony will support Yaohua in meeting its strategic targets of becoming a leading company in China and a top grade global glassmaker," John Zhao, CEO of Hony, said in a statement.
Yaohua will use the funds as working capital as it relocates to the suburbs of Qinhuangdao in order to expand its production capacity. The company wants to have 13 production lines for float glass, two lines for borosilicate glass and one line for aluminosilicate glass. The goal is to take annual sales above RMB5 billion ($777 million) by the end of 2015.
Between 60% and 70% of Yaohua's sales originate from the construction industry, with 5-10% from the auto industry. Although there are plans to boost higher-end business lines such as low-emission glass, Li said that Hony expects a rebound in the construction industry largely driven by the government's drive to build more affordable housing.
In 2010, China's State Council indentified the glass industry - as well as iron and steel, cement, coal chemicals, poly-crystalline silicon used in solar panels, and wind power equipment - as an area in which consolidation was required to rein in overcapacity.
Hony has invested in the glass industry before, taking a stake in Jiangsu Glass Group in 2003. The company listed in Hong Kong two years later.
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