Andrew Chilvers

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Chinese companies are increasingly looking overseas for investment opportunities either through foreign acquisitions, an AIM listing or both.

With China’s continuing double digit growth and foreign direct investment topping $63 billion [£31.9 billion] in 2006, analysts often overlook the increasing trend by Chinese companies to look abroad for investments.

Nevertheless, recent figures estimate foreign investment by Chinese firms has increased to $7 billion in 2005 from $500 million in 2000, and one of the favoured destinations for Chinese investors is AIM.

Almost 30 Chinese-based or Chinese-focused companies are listed on AIM, with a combined value of some £2.5 billion. A listing on London’s junior market gives Chinese companies a profile, good governance and accountability that attracts the right publicity and investment at home and abroad. Moreover, Chinese firms have performed well on AIM with average share price gains of 68.5%.

One Chinese enterprise that made a UK-based acquisition last month was the Xiamen Zijin Tongguan Investment Development Company’s £94 million acquisition of AIM-listed Monterrico Metals.

The London-based resources development firm’s principal asset is the large, wholly owned Rio Blanco copper/molybdenum deposit in northern Peru. The mine has deposits of 1.2 billion tonnes, making it one of the largest undeveloped copper mines in the world, worth some £50 million a year gross for 20 years.

Monterrico’s recent feasibility study on Rio Blanco was enough to seal the deal with Hong Kong-listed Zijn Group, a consortium led by Chinese mining tycoon Chen Jinghe. The Zijin consortium comprises a mix of private and public Chinese companies as well as a Chinese state-owned investment enterprise.

Zijin Consortium intends to retain the listing of Monterrico on AIM (subject to regulatory approval) for at least 12 months and during this period will restrict its shareholding in Monterrico to not more than 70%.

London-based nomad Ambrian Partners, part of Ambrian Capital – which is itself listed on AIM – advised the Chinese company on the deal.

Meanwhile, Dublin-registered Chinese firm Sun 3C Media has recently made several acquisitions, including the China Business Post for £4.2 million and mobile content provider Upstart Games in late 2006 for £7.85 million [see March issue, page 14]. Sun 3C, which listed on AIM in July last year with a market cap of £74.2 million, also acquired the assets and business of CEC-Unet, a Chinese provider of electronic payment and top up services for mobile phones in early May for £9.4 million.

The acquisition positions Sun 3C as a market leader, giving the company control of 18,000 retailers in China’s Henan province and access to more than five million active customers. China now has an estimated 440 million mobile users, which is the world’s largest market.

China Goldmines (CGM) is another an AIM-listed business that floated in February last year with a market cap of £13.5 million [see page 22 for the full story]. With the company’s recent acquisition of eight gold mines in Western China, the share price has now doubled to 119p along with the market cap at £26.8 million.

At the time of the listing, CGM raised a relatively modest £4.5 million to help secure mines in its Guanzhuang project in Hunan province. Working with its joint venture partner, Hunan Geology and Exploration Bureau, CGM’s subsidiary – Hunan Westralian Mining – recently took 100% control of the eight mines for about £12 million. The company’s chief executive is Frank Vanspeybroeck, a veteran of mining projects in Western Australia. His Chinese joint venture partners were adamant that an AIM flotation had to happen before acquisition negotiations could begin in earnest.

The most successful AIM quoted business in the past year is solar energy concern ReneSola, which increased pre-tax profits from £300,000 to £11.4 million and plans further expansion. ReneSola, based in Zhejiang, boosted revenues more than tenfold to the equivalent of £44 million in 2006 and raised £12 million with its August AIM float.
Another fuel friendly business to list on AIM was China Biodiesel, which has a market cap of £45.8 million. Based in Longyan in the Fujian province, the company is the first of its type to engage in commercial production of biodiesel in China. The products are used as an alternative to fossil diesel for vehicles, as well as in the production of phosphate-free detergents and shampoo, and toxin-free food packaging and crockery. In January 2006, the Chinese government introduced a renewable energy law to reduce the country’s reliance on oil imports and to increase the uptake of alternative fuels. As a result, China Biodiesel expects to experience significant growth in demand in China in the coming years.

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