Sichuan Zhiquan Special Cement Closes US$40m financing to expand cement production in the earthquake affected areas

Sichuan Zhiquan Special Cement Closes US$40m financing to expand cement production in the earthquake affected areas
Published: 13 October 2008

Sichuan Zhiquan Special Cement announced the closing of a US$40m convertible preferred stock financing led by the corporate principal investment arm of Merrill Lynch and Lunar Capital Management.

The investment will fund technological upgrade and expansion of Zhiquan’s existing plants and will allow the Company to complete a 3000tpd production line already under construction at the site of its destroyed Ziping production line in BaiHua Village ( ) near the Sichuan earthquake epicenter.

This plant will be a key supplier of cement to the reconstruction efforts in the region. The investment will also allow Zhiquan to complete a 3000tpd production line already under construction in ShiYang, TianQuan county, in the mountainous region to the west of Chengdu. This plant will greatly expand the Company’s ability to supply the numerous dams and hydroelectric power stations under construction as well as the earthquake repair and upgrades underway in the region.

Commenting on the new plants, founder, chairman and CEO Chen Zhiquan explained that "Zhiquan’s existing plants are situated in perfect locations to supply both the earthquake reconstruction and hydroelectric build-out that is happening in the region. The plant expansions will help us meet the severe shortage of cement in these regions and we believe our business is unlikely to be impacted by the slowing economy." Following the earthquake Chen and the investors visited the devastated Aba and Tianquan county regions to meet with government officials in charge of the reconstruction. The Company has received strong support from the local governments to expand its existing plants to reduce the shortage.

Eos Asia Investments arranged the financing and is preparing the company for a possible overseas IPO in 2010. As both investor and advisor to the Company, Eos organised and oversaw every step of the investment process. Eos President Jon Carnes stated: "We are very pleased to provide Zhiquan with the funding it deserves at a good valuation despite very poor market conditions. Zhiquan’s tremendous growth potential and durable competitive advantages make this our favourite investment in China to date."

Merrill Lynch and Lunar Capital led the investor pool by purchasing a large proportion of the convertible preferred shares offered. Harvest Finance Ltd, an affiliate of Lunar Capital Management, further led a bridge financing to aid the acceleration of the Company’s expansion efforts.

Jason Brand, president of Merrill Lynch Pacific Rim, expressed that "Merrill Lynch is honoured to play a part in the continuing efforts to rebuild the areas devastated by the Sichuan earthquake." David Lee, managing director at Merrill Lynch (Asia Pacific) Limited, explained that "Zhiquan is now well situated to assist in the reconstruction efforts essential for the future of the affected areas in Sichuan."

Derek Sulger, partner of Lunar Capital Management and a director of Harvest Finance Ltd., added "We are pleased to have the opportunity to assist Zhiquan in driving further value creation, and also in providing the necessary additional liquidity to allow for continued production and expansion during the difficult earthquake period."