Liaotong Chemical: Create a Large Petrochemical Enterprise

Since its listing in the stock market, Liaotong Huajin Tongda
Chemicals Co., Ltd. (Liaotong Chemical, SZ: 000059) has paid off
bank loans with funds raised in the stock market to reduce its
capital cost. The company announced in April 2007 that it would
issue no more than 600 million domestic shares to investors
including Liaoning Huajin Chemical Industry Group Co.,
Ltd.(Huajin Group) mainly for the construction of a 450 000 t/a
ethylene project and a matched 4.0 million t/a ethylene raw
material project. (CCR2007, No. 12) The scheme for share
issuance was already passed at the shareholders' meeting held
on June 21st, 2007. Huajin Group will use RMB1.5 billion to buy
most of the shares and other investors will buy the remaining
shares. Huajin Group holds 60.26% in Liaotong Chemical.
    Liaotong Chemical is a key chemical fertilizer enterprise
in Northeast China. Its leading product is urea. The total
capacity of the 3 units in Panjin and Huludao of Liaoning
province and Aksu of Xinjiang reaches 1.5 million t/a. Liaotong
Chemical has conducted realignment to its industrial
development. It takes the chemical fertilizer business as the
basis and the petrochemical business as the new profit growth
point. The company will highlight the development of the large
petrochemical industry composed of chemical fertilizers and
petrochemical products and form two major industrial chains
including chemical fertilizers with natural gas as raw material
and petrochemical products such as naphtha, ethylene and
ethylene oxide with crude oil as raw material.
   
Eye on ethylene supply shortage   

The total investment of projects planned to be launched by
Liaotong Chemical is RMB10.72651 billion, including RMB6.53819
billion for the 450 000 t/a ethylene project and RMB4.18832
billion for the 4.0 million t/a ethylene raw material project.
If the oriented share issuance is successful, RMB3.5 billion to
be raised will be totally used in the construction of these
projects. The outstanding amount will be raised by controlling
shareholders. The raw material in the industrial chain is mainly
crude oil, the intermediate product is naphtha and final
products include diesel, petroleum coke, ethylene, HDPE (high
density polyethylene), PP (polypropylene) and styrene. The
construction period of the ethylene raw material project is two
years. Equipment installation will be completed in September
2008 and production will be started in November 2008. The project
will reach 50% of the design capacity in 2009 and 100% of the
design capacity in 2010. After the completion of the project,
the average annual sales revenue will be around RMB14.73 billion.
The construction period of the 450 000 t/a ethylene project is
30 months. Production will be started at the end of 2008. The
project will reach 50% of the design capacity in 2009 and 100%
in 2010. After the completion of the project, the average annual
sales revenue will be RMB7.689 billion.
    The demand for ethylene in China is rapidly growing in recent
years. The drastic demand, however, still has to be satisfied
by the import of downstream derivatives. Eleven ethylene
construction and expansion projects with a capacity of over 500
000 t/a each are being executed or planned in China. The gap of
the equivalent ethylene demand/supply is however further
widening. According to the projection made by experts, the
supply shortage of ethylene in China will likely reach 19.5
million tons in 2015.

Seize optimal development opportunity

Huajin Group will fully employ advantages in resources, capital
and policy to construct a petrochemical base and create a fine
chemical industrial chain. Projects to be launched by Liaotong
Chemical with the funds raised in the stock market this time are
located in Panjin Tianhe Petrochemical Industry High-Tech Zone,
Huajin Group Ethylene Project Area in Panjin. The area has strong
industrial basis, rich oil/gas resources and adequate and
complete infrastructures such as water, power and
transportation. To support the project execution undertaken by
Huajin Group, Panjin Municipal Government has decided to offer
an area of 1 km2 to Huajin Group free of charge.
   According to executives from Liaotong Chemical, after the
completion of the projects the ethylene business in the company
can have expansion and upgrading. With the completion of the 450
000 t/a ethylene project and the 4.0 million t/a ethylene raw
material project, the company will become the fourth major
enterprise with the integration of ethylene, refining and
chemical production only next to CNPC, Sinopec and CNOOC and also
the fourth major chemical fertilizer and petrochemical group in
China. The establishment of the large petrochemical industrial
chain and the formation and the development of an industrial mode
laying equal emphasis on the chemical fertilizer business and
the petrochemical and ethylene business will promote a rapid
growth of the operating performance in the enterprise. While
making preparations for the ethylene project, Liaotong Chemical
will soon purchase the ABS assets (60 000 t/a) from its parent
company and expand its capacity to 200 000 t/a. The value is
around RMB580 million. At the same time the company will partner
with strong strategic investors to jointly achieve sustained
development.