Chinese chemicals giant raises $654m in Hong Kong IPO

Tianhe Chemicals will use the funds to drive R&D and overseas expansion

Hong Kong financial district

Hong Kong Financial District Image: Matt Brittaine

The company, which produces both lubricants additives (LOA) and fluorochemicals (SFC looked to take advantage of a favourable market for Asian stocks driven by positive manufacturing data from China.

However, the closing price on the day of the IPO was HK$1.80, well below the companies expectations of HK$2.25.

Tianhe is already China's largest LOA producer, with a 41% market share, and will use the proceeds of the IPO to help fund an overseas expansion.

Almost 90% of the global LOA market is dominated by just five players, although NewMarket represents the only pure play operation, since Lubrizol is unlisted and Oronite and Infineum are major subsidiaries.

The 11% share sale raised between $654m that will be used to fuel overseas acquisitions, boost R&D, increase international sales or recruit skilled staff (Tianhe has already poached technical experts from Lubrizol and Dupont).

Tianhe's IPO, the fourth largest of this year on the HKSE, also made its owner chairman Wei Qi into Northeast China's richest man with a personal wealth of over $2bn, according to Forbes.

Currently, the company's sales are primarily driven by domestic demand. CNPC and Sinopec, its two biggest customers, jointly made up 57.2% of its LOA segment revenues in 2013. Tianhe is also betting on a rising demand for additives products in China, where increasingly strict fuel emissions regulations are likely to spur demand. In China, LOA accounts for just 5.7% of small engine oil compared to 15.4% in the US.