China Eco-Materials Revises IPO Terms, Seeking Up to $15 Million

The Nanjing-based company sells construction materials made from industrial waste and enjoys tax breaks from Beijing.

CapitalWatch Staff
    Nov 27, 2019 10:30 AM  PT
China Eco-Materials Revises IPO Terms, Seeking Up to $15 Million
author: CapitalWatch Staff   

China Eco-Materials Group Co. Ltd., seeking a U.S. initial public offering, has downsized its expected flotation.

In a filing with the U.S. Securities and Exchange Commission on Tuesday, Eco-Materials Group said it aims to sell between 1.8 million to 3.3 million ordinary shares to raise a maximum of $15 million. Its expected price per share is $4.50.

That was a drop from the company's previous $21.3 million target which Eco-Materials applied to raise according to its filing in early October.

Based in Nanjing, Eco-Materials produces eco-friendly construction materials. Specifically, it sells autoclaved aerated concrete blocks and ready-mixed mortar made from mining waste (iron tailings and copper tailings) and fly-ash. Its business operations are conducted by its variable interest entity (VIE), Nanjing Fuya, with customers in Jiangsu province.

In its filing, Eco-Materials wrote, "We use industrial waste as our primary raw materials, and although the cost of sourcing fly-ash has increased significantly in recent years, the biggest raw material cost for our concrete blocks, per square meter, is still quicklime, and the biggest raw material cost for our ready-mixed mortar, per ton, is cement."

The company has long-term partnerships with construction companies and real estate developers, according to the prospectus. It also enjoys tax breaks from the government, which supports the development of waste resources recycling businesses.

Eco-Materials said, "70% of the value added tax for all our products will be refunded to us and we can also deduct 10% of revenue generated by our eco-friendly products from our total profit for our enterprise income tax purpose."

The company has also applied for a government subsidy to build its new wet mixed mortar production line which will use industrial waste for raw materials, it said.

For the six months through August 2019, Eco-Materials reported revenue of $3.4 million, up 9% year-over-year. Net income was $549,000 compared with $605,000 in the six months through August, according to the report.

For the year through February 2019, the company said its revenue rose 11% to $7 million from $6.3 million in 2018. Net income increased by 17% to $1.4 million in 2019 from $1.2 million in 2018, according to the data in the prospectus.

Eco-Materials said it is planning to invest in personnel training, equipment and production upgrades to boost the quality of its products and drive its revenue. The company also intends to grow its sales team, it said.

The deal, underwritten by Network 1 Financial Securities Inc., is anticipated to take place on the Nasdaq Capital Market. Eco-Materials has applied to trade its shares under the ticker symbol "ZGHB."