Bloomberg News

Zoomlion Ends Slump After Unit-Sale Reassurance

March 26, 2012

Zoomlion Heavy Industry Science & Technology Co. (1157) headed for the first gain in seven trading days after reassuring investors about the planned sale of a sanitation-equipment unit that’s its fastest-growing business.

The company rose as much as 6.2 percent in Hong Kong, the biggest intraday jump since March 9. It had declined 12 percent through yesterday after saying March 15 it would sell 80 percent of the unit, which makes street-sweepers and garbage trucks, possibly to a group backed by executives including its chairman.

A regulator has told Zoomlion that there should be at least five independent bidders in the auction for the unit, said Liu Rong, an analyst at China Merchants Securities, citing a Zoomlion conference call yesterday. The Changsha, Hunan province-based company wants to sell the business as there is little overlap with its main construction-equipment divisions and because the unit is set to add capital-intensive sanitation services, it said in an e-mailed reply to Bloomberg News questions.

“Greater details on the bidding process has helped to ease market concerns about the transaction,” Liu said. “The company also explained more clearly their vision for the sanitation unit.”

Zoomlion (1157), China’s biggest cranemaker, expects to raise at least 3.2 billion yuan ($507 million) from the sanitation-unit stake sale. The company has barred competitors from bidding for unit and said that buyers must pay in cash.

The stock was up 5.8 percent at HK$10.58 as of 11:04 a.m. It had fallen for six days starting on March 19.

The drop reflected “investors’ concern about the executives’ interest in the transaction,” said Stanley Yan, a Shanghai-based analyst at Masterlink Securities Corp. (2856) It created “an overhang on the company’s business outlook.”

Bond Offering

Zoomlion is also working on plans for a debt offering. The company is talking to investors about a five-year U.S. dollar bond, which may yield about 7 percent, a person familiar with the matter said today. They asked not to be identified because the details are private.

The company expects to price the sale earlier next month, it said in reply to questions today. It’s too early to comment further, it said. The cranemaker hasn’t said how much it plans to raise. Macquarie Group Ltd. analysts Saiyi He and Summer Xia said earlier this month that it may be as much as $1.5 billion.

Sanitation Investments

The sanitation unit requires as much as 1.5 billion yuan for capital investments, as much as the companywide total for last year, Ge Wenjie, an analyst at Nomura Holdings Inc., said in a note, citing the Zoomlion call. The unit will expand in areas such as running incinerators and sewage plants, Zoomlion said.

“We can’t support the rapid development of both the construction-machinery and sanitation-equipment businesses at the same time,” it said. “The company has no further capital and other resources to support this unit.”

Zoomlion (1157) had 16 billion yuan of cash and cash equivalents at the end of last year, down from 18.76 billion yuan a year earlier.

The sanitation unit’s sales rose 59 percent last year to 3 billion yuan. That compares with a 51 percent rise to 21.2 billion yuan for the construction-equipment business and a 41 percent rise to 15.6 billion yuan for crane-making operations.

Zoomlion has “dispelled investors’ concerns associated with the disposal to a certain degree,” said Nomura’s Ge, who rates the company neutral. The sanitation business “is largely different from that of construction machinery.”

The company expects to sell the sanitation unit for at least 11 times 2011 earnings, it said. Its own Hong Kong shares trade at about 8 times, according to data compiled by Bloomberg.

Chairman-Backed Bid

Zoomlion Chairman Zhan Chunxin and other executives will join with Hony Capital Ltd. to bid for the sanitation-unit stake, according to Zoomlion. The managers would own less than 20 percent following a successful bid, Zoomlion said yesterday.

A successful bid by the executives-backed group would benefit Zoomlion by smoothing the transition, the company said yesterday. The management involvement may also draw investment that will help the unit expand, it said. The business already makes about 60 percent of China’s road sweepers, limiting its potential for growth without diversification, Zoomlion said.

The crane-maker expects companywide sales growth to slow to 35 percent this year from 44 percent in 2011 because of cooling domestic demand for cranes and concrete pumps. The company is also planning to expand overseas, including building plants in the U.S. and Japan, to help spur sales.

Fitch Ratings Ltd. gave Zoomlion (1157) a BBB- rating, its lowest investment grade, following the announcement on the planned bond offering. Standard & Poor’s separately rated the crane-maker BB+, its highest non-investment grade. The two ratings companies both gave the crane-maker stable outlooks.

To contact the reporters on this story: Jasmine Wang in Hong Kong at Jwang513@bloomberg.net

To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net


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