China’s Asimco Expects US IPO Within Two Years

Dow Jones Newswires
By Owen Brown

February 26, 2006

SYDNEY (Dow Jones)–Asimco Technologies, a privately-held auto components maker based in China but backed by U.S. venture capital, is expected to launch an initial public share offer in the U.S. within the next two years, chairman and chief executive officer Jack Perkowski says.

Perkowski was billed this month alongside former U.S. President Bill Clinton, former Disney chief executive Michael Eisner and former Hewlett Packard chief Carly Fiorina as key speakers at a global business forum in Sydney.

His appearance alongside such headliners comes amid a growing interest in the China market within Australia as continued demand for commodities and the increasing flow of competitively priced exports helps to drive growth in the local resource sector.

Asimco has had a ringside seat for that expansion, supplying car and truck parts through its 18 factories and 36 sales offices to China’s fast-growing auto market. Nearly half of Asimco’s revenue of about US$350 million a year is generated from global customers, with sales to automotive leaders in the United States, Europe and Japan.

Speaking on the sidelines of the Sydney forum, Perkowski said that up until now Asimco has been able to finance its expansion through a combination of earnings and debt financing.

But he said the company’s expansion plans will probably prompt an IPO in the United States.

“There is really nothing immediate but I think in the next two years there would be something that we would most likely be doing,” Perkowski told Dow Jones Newswires.

“At some level you need to get more equity so what we are looking at down the road is opportunities to list the company and add equity.”

Perkowski, a former U.S. investment banker with Paine Webber, was a trail blazer in China, channeling foreign investment into joint ventures in former state-owned auto part makers and breweries as the country began opening up to the outside world in the early 1990s.

After a few heartaches and hard lessons learned, Asimco restructured two years ago from managing a portfolio of investment companies. Its focus now is on operating auto components makers that supply an increasingly diverse array of commercial and passenger vehicle makers.

This shift included the development of wholly-owned foreign enterprises rather than joint ventures with local partners, a formula that plagued the smooth management of its initial investments.

The restructuring, including an injection of new capital from the U.S., led to Asimco’s construction of seven new wholly-owned plants within China in 2005 and the acquisition of a U.S.-based components maker Federal-Mogul Corp. (FDMLQ) in April 2003.

Set up in 1994, Asimco’s backers include the World Bank’s International Finance Corp., American International Group (AIG) and Key Principal Partners, the private equity unit of Cleveland-based financial services group, KeyCorp. (KEY).

No Plans To Tap China Stock Market

Perkowski said that the U.S. market is a more likely option than listing the company as a local enterprise on one of China’s still embryonic stock markets.

Chinese officials have hinted that foreign companies might be allowed to list their Chinese assets on the A-share markets to increase the diversity of the stock currently on offer.

Perkowski said that while an IPO in China would raise capital for use within the country, the partial convertibility of the yuan means that money can’t be used outside of China.

“You can use it to raise capital to do more things in China but not to raise capital to do things outside of China,” he said.

“We don’t really look at this as a sensible alternative for us in the near term.”

Apart from its expansion plan in China, Asimco seeks to increase its exports to the U.S. and Europe, as part of its strategy to become a “fully global” auto component maker.

In that regard, Perkowski is backing his belief that China will emerge as the world’s center for manufacturing, and not just at the low-end of the market.

“As much as has been written about it, I don’t think industries really understand how China is going to impact them,” Perkowski said.

“A lot of industries were in denial about China’s ability to make products cheaper and they have been surprised how quickly China has gone up the learning curve cost-wise and sophisticated product-wise and surprised about how quickly the market has really picked up.”

People still have a blind spot about the ability for China to grab their markets, Perkowski said, adding that conventional wisdom is that China can copy but it can’t create.

But he said that will change as the China market becomes so large that its unique demands will drive local innovation and as more research and development is relocated from offshore to be closer to suppliers.

“You’ll suddenly start to see that the center of gravity, as far as technological innovation is concerned, moving to China,” Perkowski said.

“When you combine that with cost and market factors, it will dramatically change their industry.”

Opportunities For Further Growth

With China’s yearly economic growth rates of more than 9% in the past two decades helping to lift global markets and underpinning price increases across a range of commodities including crude oil, a much asked question is how much longer can this sort of expansion be sustained.

Perkowski points out that the auto market quickly expanded from 600,000 to 1.5 million annual output in the 1990s and then surged from two million after China’s entry into the World Trade Organization to more than six million.

China’s commercial and passenger auto market is now expected to eclipse the U.S. as the world’s largest within the next two decades.

That pace of growth caught many people by surprise, Perkowski said.

Ten 10 years ago people were looking at China as an interesting market that was never going to amount to a lot because of the low wages and buying power of the population, he said.

Yet even after two decades of reform, the economic changes within China have really only reached about 400 million of the country’s 1.3 billion people, Perkowski said.

“There is a billion people out there who haven’t really participated,” he said.

China’s ability to raise the living standards of those people as they leave the farm to take up higher paying jobs in the manufacturing and services industries will determine the sustainability of the current pace of economic growth, he said.

“I think you have this conversion of the rural economy to the industrial economy and unless for some reason that stops then I think China can kind of generate some pretty healthy growth rates,” Perkowski said.