IPO Watch: This Chinese company wants Aussie cash for ball bearings
Chinese ball bearings manufacturer Halu Group wants to ‘get its bearings’ internationally via a listing on Australia’s second market, the National Stock Exchange (NSX).
The company wants $1 million, via the issue of 5 million shares at 20 cents each, to fast-track an international expansion strategy.
Halu sells its friction-reducing bearings, all made in China, in 30 countries across industries from agriculture and mining to food and beverage.
So why list in Australia?
All Halu says in its prospectus is the prospective NSX listing “is an important step to further internationalise its business”.
Reducing the friction
Halu set about strengthening its Australian links two years ago, when it set up an Australian business Shandong Halu Pipe and Bearing Co in December 2017.
It also signed a two-year commercial research and development agreement with the University of South Australia to study frictionless coatings.
The South Australian government has maintained a sister state relationship with China’s Shandong province — where Halu is based — for the last 32 years.
However, Halu warned there’s “no guarantee the commercial arrangement with UniSA will produce commercially viable results”.
The company also plans to open an office in Australia and increase local sales, which currently make up just a small percentage of its global revenue stream.
Do the numbers stack up?
The numbers presented by Halu in the prospectus make for an interesting read.
It’s not a huge operation — the company made revenue of around $7m in calendar 2016 and 2017.
Net profit was around $200,000 in 2016 and increased to just over $400,000 the following year. Those numbers are presented in Australian dollars, converted from Chinese renminbi.
Those figures were signed off by an Adelaide chartered accountant but with one wrinkle: the auditors issued a qualified opinion because they weren’t able to personally inspect millions of dollars in inventory and fixed assets the company claims to own.
Under the Australian Auditing Standards, an auditor must make a qualification if they are “unable to gain sufficient appropriate audit evidence” on which to base their opinion.
Halu’s core operations are based in China, and the auditor did not pay a visit.
In addition, the auditors were only retained in March 2018 so they were unable to confirm whether the 2016 and 2017 numbers were based on reliable comparative figures from previous years.
However, a second accounting firm retained as an independent expert backed the auditor’s qualified opinion.
The offer closes on March 7 and the shares are expected to be quoted on the NSX by March 28.