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Zongshen to Issue Bonds Valued RMB 750M to Set up 10,000 Repair Shops in China

20th October, 2011
Zongshen will issue RMB 750 million of bonds to set up 10,000 repair shops in China.
Bond road show of Zongshen Power was held in Le Meridien Chongqing, Nan’an on 14th October, 2011. The president of Zongshen Industrial Group Zuo Zongshen accompanied by the general manager of Zongshen Power Hu Xianyuan, the secretary to the Board Huang Peiguo, CFO Qin Zongrong and other high-rank administration officers were present at the road shown. Mr. Zuo Zongshen announced on site that capital raised through bonds would be used for distribution channels and industrial chain, especially for the promotion of Zuo Shifu sales and service network. Zongshen will set up 10,000 Zuo Shifu repair shops in China.
Institutional investors swarm to Chongqing
At yesterday’s road shown, more than ten of the most important institutional investors in China, such as China International Fund, Great Wall Fund, South Fund, Xinhua Express, Guohua Life, Capital Investment, Franklin Templeton Sealand Fund, AVIC Securities, Huashang Fund send their own representative to attend the meeting.
“I have not witnessed swarm of institutional investors for long time in Chonqing!” A Chongqing’s security business man said with emotion. It is said that the occasions of institutional investors trooping to the listed company in Chongqing has dropped dramatically compared with past years since A Share secondary market is in downturn.
Analysis of Credit Suisse Founder, the Sponsor of the bonds of Zongshen Power, explains why so many institutional investors pay high attention to the bonds. It is introduced that the issuing scale of Zongshen Power’s bonds is defined generally to be RMB 750 million, and the bond period is six years with 3+3 mode. The highlights in investment lie in that Zongshen is the leading enterprise with preeminent brand and quality in the industry; there is gratifying prospect of three-wheel motorcycle industry and that Zongshen Industrial Group will provide unconditional and irrevocable suretyship of joint and several liability.
In the meantime, joint credit rating agency evaluates the credit rating of issuer Zongshen Power and corporate bonds as AA rate.
“The corporate bond issued by Zongshen Power this time makes several records,” said the secretary to the Board Huang Peiguo. This is the first corporate bond in Chongqing that is approved to issue. It is approved by the China Securities Regulatory Commission unconditionally. “According to the procedure, the Company should state after the sponsor makes introduction. But issuance of the bond is approved even skipping the Company’s statement.”
After sales service also makes money
“We have analyzed the market in details. It is found that the domestic after sales service is not satisfied and even worse in the world though the domestic motorcycle industry sells out more than 20 million cycles every year. We are devoid of a specialized service brand.” Zuo Zongshen said that the corporate bond issued by Zongshen Power is mainly used for network establishment of Zuo Shifu Power Machinery Sales and Service Co., Ltd., with which Zongshen intends to develop after sales service business and network channel for more profitable motorcycles, electronic vehicles and their parts to realize strategic transformation to comprehensive business.
“There is no competitor to Zuo Shifu in the industry at present, and competitive situation has not formed yet.” He said that as a after sales service company supplying third-party service, Zuo Shifu would carry out special resource configuration, background service management to guarantee applicability of components and parts. It also provides village- and town-level material distribution service. So the professional level and qualification is so high that other companies cannot operate such business yet at present.
It is disclosed that Zongshen has establish strategic cooperative partnership with China Post, which will provide logistics distribution in the future. In the meantime, Zongshen is negotiating with a specialized after sales service company of Italy, which is expected to be responsible for international after sales service of Zuo Shifu. In China, there have been ten Zuo Shifu Shops. It is intended to establish 3000 shops in six provinces and a municipality within 3~5 years, and 10,000 shops in China in the future.
Mr. Zuo Zongshen said that domestic motorcycle population is 200 million, and that of electric motorcycle is 150 million. As the first standardized after sales service chain, Zuo Shifu has great potential market. When the chain shops extend into town and village, they also can be used as network platform for marketing agricultural machinery, power tillers and generator sets.
“According to our calculation, on the basis of its location and area, each of the established Zuo Shifu shops needs RMB 500,000~1,500,000 investment and the average return rate is 25%. Some shops can get money back even within one year or one and half year.” said Mr. Zuo. The annual business income can reach RMB 800 million and profit can exceed RMB 100 million after Zuo Shifu network is built up.
Zongshen intends to take over key part manufacturers
In addition to establishment of Zuo Shifu chain shops, the capital raised through the bond issuance is also used to take over or hold stock in key part manufacturers.
“Since last year, bottle neck is caused in supply of some components and parts because of rise of price of copper, aluminum, steel and other raw materials and shortage of laborers, which restricts the full play of 200,000~300,000 of annual production capacity of Zongshen.” The general manager of Zongshen Power Hu Xianyuan said that it was buying-and-selling relationship between Zongshen and the suppliers and Zongshen was short of controlling and restricting upstream industries. According to statistics, the part manufacturers with annual production volume less than RMB 200 million have generally flaws in management. They have great potential in technical improvement.
He disclosed that Zongshen will take over some manufacturers producing key parts next, for example, cylinder head, crankshaft, etc. Zongshen is going to control their quality and cost through capital intervention to initiate vigorously in petrol power, diesel power and electric power and become the number one in the industry in source configuration. Zongshen is the first one and the only one to make up the plan, and other enterprises even do not give thought to it.
Mr. Zuo Zongshen said that Zongshen Group is transforming from small compact power manufacturer into comprehensive service supplier. In aspect of power system, the Group will involve in gardening and agricultural machinery, small yacht and small general-purpose aviation. And in aspect of new energy, Zongshen Group has initiated electric motorcycle, and is seeking for greater market space for lithium battery and other new energies.

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