China’s Jiangsu Innovative to float shares in Hong Kong; proceeds will be used to build high-purity oleic acid plant

China’s Jiangsu Innovative Ecological New Materials, a developer, manufacturer and marketer of oil refining agents and fuel additives, said it plans to use more than half of the proceeds from a Hong Kong public float to build a high-purity oleic acid plant to produce lubricity improvers.

Jiangsu Innovative Ecological New Materials is seeking HKD 150 million (USD 19.1 million) in a Hong Kong public float. Trading in the company’s shares will start on March 28 on the main board. Orient Capital (Hong Kong) is the sole sponsor.

The company has issued a total of 120 million shares at an indicative price range of between HKD 1 to HKD 1.25 (USD 0.13 to 0.16) per share. Investors will pay a minimum of HKD 2,525 (USD 321.8) to buy a board lot of 2,000 shares.

Jiangsu Innovative’s oil refining agents are used to refine crude oil and extend the working life of oil refining units, improving economic efficiencies. The fuel additives are used to help customers comply with stringent mandatory emissions regulations while maintaining the quality and efficiency of fuels. The key oil refining agents are desulfurizing agents and metal passivators, while the key fuel additive is lubricity improvers.

Jiangsu Innovative ranked among the top five players in China’s oil refining agents and fuel additives industry and had a 1.7% market share in terms of domestic revenue in 2016.

As an early entrant in China’s oil refining agents and fuel additives industry, Jiangsu Innovative formed long-standing relationships with various affiliates of Sinopec, China National Petroleum Corporation, and China National Offshore Oil Company, China’s three state-owned conglomerates that dominate mainland China’s petroleum and petrochemical industry.

Since these three conglomerates account for 72% of China’s oil refining market in 2016, Jiangsu Innovative says the relationship with these companies is its major strength. Although sales to affiliates of the three companies account for more than 90% of Jiangsu Innovative’s total revenue, Chairman and CEO Ge Xiaojun says he is not worried about the over-concentration of its customers.

Huang Lei, general manager of Jiangsu Innovative, says the sales contract with the three companies will expire in 2021.

After making its trading debut in Hong Kong, Jiangsu Innovative plans to use 41% of the net proceeds from the float to upgrade its plant with new machinery, equipment and analytical instruments.