In May 2017, Levima Advanced Materials, a subsidiary under Legend, (hereinafter referred to as ‘LAM’) received a strategic investment of RMB850 million from the Chinese Academy of Sciences Holdings Co., Ltd. (hereinafter referred to as “CAS Holdings”). After the completion of the transaction, Levima Group, a wholly-owned subsidiary of Legend, holds 60.44% of shares, and CAS Holdings holds 29.50%. Combining the core technologies and capital of the Chinese Academy of Sciences and the strong resource base and management capabilities of Legend, LAM will continue to exert its strength in the professional industry.
Room for Imagination: Technology + Capital
Among China's scientific research institutions, there is no shortage of proprietary core technologies. However, how to commercialize the scientific research achievements has always been a challenge ahead of research teams and entrepreneurial groups. The good news is that as Chinese companies continue to invest in innovation, more and more scientific research achievements have begun to be converted from laboratory results into powerful tools that enable Chinese companies to expand their markets. As an important part of Legend’ strategic investment, LAM’s growth and CAS Holding’s strategic investment fully demonstrated the room for imagination when technology and capital go together.
LAM is an enriched-methanol-based, one-million-ton high-end olefin deep processing industrial chain invested by Legend by utilizing the patented 2014 National Technological Invention Fist Prize-winning DMTO technology of Dalian Institute of Chemical Technology of Chinese Academy of Sciences as well as the world's first olefin separation plant of Luoyang Petrochemical Engineering Co., Ltd. with its own independent intellectual property rights. LAM is located in Zaozhuang City, Shandong Province. It is dedicated to high-end new material and fine chemicals. It is one of Legend’s five strategic investment areas and serves as a platform company for Legend to deploy in the high-end new material industrial chain.
The combination of core technology and capital has already shown a beautiful prospect. Since the operation fully started in 2015, LAM has been leading the industry in terms all production and operation and all economic indicators are ahead of the industry. It has successfully developed more than 31 series, 110 branded products including non-ionic surfactants, polyether, and terminated polyether, in which more than 60 products have been are industrialized, hence becoming one of the mainstream suppliers of EOD products in the domestic market. It also produces high-performance PP products, EVA special-purposed material products and high-performance modified engineering plastics. It is the largest supplier of high-melting homopolymer polypropylene products in China. By sales volume, its high-end, high-VA-content EVA products are leading in the Chinese market. Such products are widely used in construction, chemical for daily use, textile, metal processing, photovoltaic, papermaking, emulsion synthesis, coatings, cables, lunch boxes, shoe-making materials and other industries. At present, many leading companies in a number of market sub-sectors have become the LAM's main customers. Its products are sold to countries and regions such as the Americas, Europe, and Southeast Asia.
Leading technology and financial support are the foundation for LAM to grow. As a strategic investor, Legend, while continuing to capture new opportunities, also pays full attention to post-investment management and value-added services to solidly promote the growth of business fundamentals and help the invested companies to get resources and increase their explicit value through refinancing, spin-offs, and listings.
Legend stated that ‘through the methods of debt-for-equity swaps, asset optimization and the introduction of strategic investors, Legend has helped LAM further improve its capital structure, focus on new materials business, and increase market competitiveness, thus laying a solid foundation for its independent development.
‘Legend' 2016 annual results shows that LAM successfully developed high-melting homopolymer polypropylene product, PPH-M600N, through innovating its polypropylene process, and quickly obtained over half of the domestic market share. Currently, it is the largest supplier in the country. During the reporting period, LAM’s revenue has increased significantly and it has entered a profitable growth track on schedule.
Complementary advantages to achieve "three-chain blending"
‘The new materials industry occupies a very important position in the country’s development strategy. The Chinese Academy of Sciences has a strong R&D strength in chemical engineering and new materials. CAS Holdings and the subsidiaries under CAS at all levels can be market-oriented and convert our achievements into realistic productivity, thus creating a high-quality, scale-based industrialization platform and realizing the extension of our value chain.’ Bai Chunli, President of the Chinese Academy of Sciences and Party Secretary, said when he visited LAM.
As the main investment entity of the Chinese Academy of Sciences, CAS Holdings has become another important strategic shareholder after taking stake in LAM. It is an important measure that CAS had taken to promote an in-depth structural reform of the supply side, adhere to demand traction and strategic orientation, and uses the blending of ‘capital chain, innovation chain, and industry chain’ to drive the industrial transformation and upgrading. The synergetic result from the measure is also particularly worth of expectation. This strategic investment to LAM by CAS Holdings will help to realize the complementary advantages of both. CAS has the advantages in R&D and technology reserves, and LAM is strong in the industrial foundation, management experience and operational capabilities.
CAS Holdings stated that CAS will make use its own R&D resources and innovation capabilities in the field of new materials and combine them with the industrial base, operation management capabilities, and technology transformation capabilities that LAM has in order to fully enhance LAM’s conversion of achievements and industrialization efficiency. This will help LAM integrate resources to build up its industrial advantages and strengthen its core competitiveness, ultimately increasing China's influence in the international new materials field.
Creating a new material industrial cluster with international competitiveness
After connecting the three chains of industry, innovation and capital, LAM’s strategic blueprint outlines the deep-plowing in the olefin industrial chain while give full consideration to the extension to both the upstream and the downstream. On the one hand, LAM will continue to improve its operations and profitability, and at the same time, it will build up a new pole of growth through collaborating with the Chinese Academy of Sciences, which has accumulated years of core technological achievements in the field of new materials.
Needless to say, compared with developed countries, China’s overall strength in technology accumulation, industry integration, and profitability is still lagging behind. It is precisely because of this that China has great room to grow. Zheng Yueming, Chairman and CEO of LAM, said, ‘The introduction of strategic investment is an important step for us to achieve new strategic goals of 2.0. We will realize steady growth through the two-wheel drive approach of ‘industry operations + investment’ in order to create leading and internationally competitive new material industry clusters in multiple sub-sectors.’
It is understood that LAM has formulated clear medium-term development goals, including strategic considerations for access to the capital market at an appropriate time. In the future, LAM will continue to innovate and actively connect with quality resources, accelerate the industrialization of high-end products, and aim to ‘become a company of excellence in the field of new materials’.