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IN a season where S-chips have got a bad rap, Gates Electronics is hankering to become an S-chip. It is the first firm this year to have obtained shareholder approval to list a firm with operations in China via a $105 million reverse takeover deal.
Having gained shareholder approval at an extraordinary general meeting on Thursday to acquire China Dongyuan Environment Pte Ltd, Gates Electronics expects to start trading before the end of August, renamed 'China Environment'.
China Dongyuan was set up in Singapore as the holding company for China-based Fujian Dongyuan, a firm in the environment protection industry.
Despite the reference to its Sino origins in its new name, Ma Ong Kee - China Dongyuan's director - is confident that the market will not pigeonhole it with the rest of the S-chips.
'The RTO was subjected to very stringent reviews by the Singapore Exchange, and we have passed them. We know our business model and we believe in our position,' said Mr Ma.
China Environment will be banking on its position in the niche environmental protection industry to blaze a trail on the Singapore Exchange. By 2013, the industry in China is expected to grow to 105.2 billion yuan (S$22.2 billion), at a compounded annual growth rate of 20.5 per cent.
On the mainland, China Dongyuan is engaged in the treatment of waste-gas that will reduce the amount of air pollution produced by power and cement plants. 'We've talked to a lot of fund managers and they have told us that there is a lot of demand for green industries in the market,' said Mr Ma. Currently, there are less than 10 mainland players in the waste-gas treatment industry, with the two largest players being publicly listed state-owned firms.
Huang Min, Fujian Dongyuan's chairman, is planning to capitalise on the firm's versatility as a private entity that its larger competitors lack, in bidding for state projects. 'As a private firm, there is more efficiency and cost control is tighter,' he said. The biggest risk, according to him, would be a change in government policy on environmental standards for the industrial sector.
Currently, China Dongyuan stands to benefit from the Chinese government's 11th Five-Year Plan that mandates a 10 per cent reduction in major pollutants by 2010.
At the end of last year, China Dongyuan had racked up 464 million yuan in revenue and net profit of 82.9 million yuan. Gates Electronics, in comparison, made a net loss of $708,000 for the last six months of 2008.
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