Case Study: China Dredging Group
Business Description
Founded in 2007, China Dredging Group Co. is a leading dredging subcontractor headquartered in Fu Jian province, China. China dredging provides reclamation dredging, maintenance dredging, and capital dredging services throughout the East Coast of China. The company is well positioned to take advantage of the increasing demand in domestic waterway expansion and coastal land development. The company has strategic subcontracting relationships with State-Owned Enterprise (SOE) construction companies who face continued capacity shortfalls in the Chinese dredging market.
Situation
In late 2008, with proven execution ability on its initial two-dredger fleet, the company decided to expand its business by increasing its capacity. After careful consideration, the company concluded raising capital through a US IPO would best fit the company’s near and mid-term capital needs, as well as long term strategy of international expansion. The US IPO markets in late 2008 and early 2009 made China Dredging’s initial IPO plan unfeasible. The company engaged Chardan to devise a solution that would lead to their US IPO goal.
Solutions
After reviewing a variety of structures, Chardan decided upon and arranged an Alternative Public Offering (APO) that positioned the company to launch its IPO in 2011. Chardan helped to create a plan of a private placement and reverse merger with a form 10 shell, followed by an IPO on a major US exchange. This option effectively divided the capital raising and listing preparation into two manageable stages, while making IPO execution less sensitive to market conditions.
As the lead placement agent and sole financial advisor, Chardan worked for over 2 years with China Dredging to understand its business operations and financial prospects and help create a capital markets strategy for the company going forward. We analyzed the industry and market positions of the company and came up with a plan to help the company grow and establish credibility among international institutional investors.
As part of the process, Chardan diligently advised and assisted the management in preparing for presentations to investors as well as educating the company on the value of transparency in capital markets.
In August 2010, despite negative sentiment on U.S. listed Chinese companies, Chardan was able to leverage its strong investor relationship to bring the company in front of a broad group of high quality institutional investors during the three-week deal roadshow in US, Hong Kong and China mainland.
Outcome
On October 27, 2010, China Dredging merged with CAC, a US-public-reporting form 10 shell company. On October 29th, 2010, Chardan closed a private placement financing with institutional and accredited investors in the US and China with aggregate gross proceeds of $21,855,000. On December 21st, 2010, Chardan closed on an additional $28,209,935.
The transaction gave China Dredging immediate standing as public-reporting company and is expected to greatly accelerate the Company's IPO process.
The deal represented a historic opportunity for China Dredging to become China’s first foreign owned dredging company. The existence of ample historical industry data to support valuation, well-established demographic trends, and growing cash flows made the deal appealing to investors. We continue our close relationship with the company in advising them through their transition into a world-class public company.
