China National Building Material Group, the world’s largest construction material maker and the nation’s sixth largest glass maker, aims to turn Hong Kong-listed China Glass into its platform for executing Beijing’s overhaul of China’s fragmented and troubled glass industry, according to a senior official.
The materials giant also wants China Glass to pursue overseas expansion through acquisitions and building new plants in western developed markets and emerging markets of nations along Beijing’s new Silk Road initiative , said CNBMG vice president and China Glass chairman Peng Shou.
“Our goal is for China Glass to become one of the world’s top three glass makers by capacity in three years, but its growth must strickly adhere to market-oriented principles,” he told reporters on Tuesday. “The plan is for it to add one overseas project per year.”
The plan is for it to add one overseas project per year
Peng Shou, China Glass chairman
CNBMG – parent of Hong Kong-listed China National Building Material – in December last year became the largest shareholder of China Glass by buying shares from UK-based and Japanese-owned international glass maker Pilkington at HK$0.87 each, raising its stake to 23 per cent from 14.4 per cent.
Hony Investment, the private equity investment unit of Legend Holdings, has 22.8 per cent, while Pilikington retains 12.9 per cent.
Peng said over time, CNBMG aims to inject its glass operations into China Glass. Much of such operations were transferred or sold to CNBMG by various local governments to be restructured, such as Luoyang Glass which suffered years of losses.
“CNBMG has ample experience in industry restructuring and it will act as a consolidator in the glass industry,” Peng said. “CNBMG is the sixth largest glass maker, in the future we will use the China Glass platform to complete our industry consolidation task.”
China’s debt-laden glass industry’s low industry concentration – with the largest player only commanding only an around 10 per cent of industry output – is a main reason for its poor profitability.
“China’s glass demand is huge, but the industry’s key weakness is the lack of high-end products – some of which still needs to be imported,” Peng said. “With oversupply in low-end products, producers were under pressure to engage in price wars to increase cash flows to repay loans … it is a vicious cycle.”
With oversupply in low-end products, producers were under pressure to engage in price wars to increase cash flows to repay loans … it is a vicious cycle
Peng Shou, China Glass chairman
Besides consolidating domestic operations, Peng said China Glass will also expand overseas, including the United States and Europe, as well as emerging markets like Central Asia, Egypt, Southeast Asia and South America.
“For China Glass to be successful internationally, it must have a presence in the US which has a huge market especially in automobile and information technology applications,” he said. “Similarly, we need to be in Europe.”
Asked how China Glass will finance the ambitious expansion, Peng said with the backing of state-owned CNBMG, it would have access to low-cost loans from policy banks like China Development Bank and Export-Import Bank of China.
An example of such support is a 20-year, 2 per cent interest rate loan obtained by a Kazakhstan project it plans to buy into, he said.
China Glass on Tuesday said in a stock exchange filing it was in talks to buy a glass production line under construction and funded by a sovereign investment unit of Central Asia’s Kazakhstan.
It will have a daily capacity of 600 tonnes when commercial operation begins in the first half of 2018.
China Glass, whose domestic daily capacity grew from 900 tonnes 13 years ago to 7,050 tonnes currently, is building a 500 tonne-a-day line in Nigeria, scheduled to be completed by the end of this year.
The company posted a net profit of 21 million yuan on sales of 2.1 billion yuan last year, compared to a loss of 426 million yuan in 2015, after management slashed administration costs by 46 per cent.
Gross profit margin rose to 15 per cent from 4 per cent in 2015 as product prices rebounded after the weakest producers were forced to shut down some capacity.
China Glass Tuesday closed 1.3 per cent higher at HK$0.76. It fell 7.3 per cent year-to-date, compared to an 18 per cent gain of the Hang Seng Index.