Zoomlion Plows Out of Environmental Business With $1.7 Billion Sale

(Beijing) — Heavy construction equipment maker Zoomlion said it will sell its environmental business to an investor group for 11.6 billion yuan ($1.7 billion), as it emerges from a difficult period for its sector and tries to bolster its finances by selling off non-core units.

Zoomlion Heavy Industry Science and Technology Co. Ltd. said the deal will see 80% of its environmental sanitation equipment unit sold to an investor group that includes Hony Investment, Guangzhou Investment and Lulian Junhe, according to a statement to the Hong Kong stock exchange on Sunday.

Zoomlion’s Hong Kong-listed shares were up 3.5% midway through the Monday trading day, while its Shenzhen-listed stock was up 0.9%. The company and its peers have suffered over the last two years amid a sharp slowdown in new construction, as infrastructure spending slowed and China took steps to rein in the overheated property market by limiting new development.

Zoomlion’s environmental unit generated about 5.6 billion yuan in revenue last year, accounting for more than a quarter of the company’s total. Zoomlion reported its total revenue fell 3% last year from 2015, as it reported a 929 million yuan loss amid the sector’s downturn.

“The board intends to apply a very substantial proportion of the net proceeds from the disposal for replenishment of working capital, repayment of debts and future development of the group,” Zoomlion said in its statement.

Apart from raising cash, Zoomlion said its motivation for the sale also stemmed from a trend in the environmental sector that is seeing companies increasingly provide both products and integrated solutions for customers, requiring a high degree of services. By comparison, Zoomlion is mostly focused on actual equipment manufacturing.

“The company has a leading role in the environmental equipment sector,” Zoomlion said. “It ranks top in terms market share for leading products, enjoying a prominent competitive edge in the industry. To achieve a business breakthrough, the company needs to extend its ‘industry chain’ and step into the environmental solutions sector.”

Despite their recent difficulties, Zoomlion and rivals like Sany Heavy Industry Co. Ltd. have started to recover in the last six months as construction activity picks up. In the first quarter of this year, Zoomlion reported a 66 million yuan profit, reversing a large 692 million yuan loss in the previous year. At the same time, its revenue also jumped nearly 75% for the quarter.

Contact reporter Yang Ge (geyang@caixin.com)