Pingmei Shenma: The Leapforward Development of Asia’s Largest Nylon Chemical Complex

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Pingmei Shenma: The Leapforward Development of Asia’s Largest Nylon Chemical Production Base Author/Source: Modern Coal Chemical Industry Date: 2020-07-22 Clicks: 68 Established in 1955, the former Pingmei Group was New China’s first large-scale coal production base that was explored, designed, and developed independently; it is known as the “Coal Warehouse of Central China”. The former Shenma Group, which originated as the Pingdingshan Jinlun Curtain Fabric Factory, was the only modern enterprise in China at the beginning of the reform and opening-up period to fully adopt advanced Japanese equipment and technology for the production of nylon 66 industrial filaments and coated curtain fabrics, thereby putting an end to China’s long-term dependence on imports for high-quality tire carcass materials. Today’s China Pingmei Shenma Group was formed through the merger of these two companies that are part of China’s top 500 enterprises; it has grown into a large state-owned energy and chemical group that operates across different ownership structures, industries, and countries. At present, the company has achieved revenues and total assets both in the range of 100 billion. Last year, despite the increasing pressure from a downturn in the market, its revenues reached 164.4 billion yuan, with profits approaching 2 billion yuan. The revenue generated by non-coal industries now accounts for over 80% of the group’s total revenue. It serves as a key driver for the economic and social development of the province, as well as a model for transformation, a pioneer in reform, and a strong player in the capital market. What is the \"code\" for the high-quality development of Pingmei Shenma? Since the * of the Party, the group has adhered to a development strategy centered on coal with diversification in related areas, accelerated the adjustment of its industrial structure, comprehensively deepened corporate reforms, and made significant progress in its transformation and development. Especially in recent years, adhering to the basic principle of \"six persistences\" and focusing on quality and efficiency, the group has established a new industrial framework characterized by diversified support and coordinated development, with coal coke, nylon chemicals, and new energy materials as its core industries. It has developed three distinct coal-based industrial chains for nylon chemicals, silicon materials, and carbon materials. The group owns three A-share listed companies – Pingmei Co., Ltd., Shenma Co., Ltd., and Yicheng New Energy Co., Ltd. – as well as seven companies listed on the New Third Board, such as Shenma Huawei and Silane Technology. This has led to a new phase of high-quality transformation and development driven by \"dual wheels\" of industrial capital. The consolidation and value enhancement of the coal-based specialty chemical industry chain within industrial parks – stemming from coal yet going beyond it – has been the main theme of Pingmei Shenma Group’s reform and innovation efforts over the past 20 years. The coking coal, one of the group’s coal products, is a globally scarce strategic resource. It possesses inherent advantages such as low sulfur, low ash, low phosphorus, low alkali metals, excellent thermal properties, and few harmful elements. Its quality ranks second in the world and first in China, while its production volume is the highest in the country. The current reserves can support stable mining for over 70 years. Leveraging the unique advantages of its coal varieties, Pingmei Shenma Group is actively pursuing a \"high-quality coal strategy,\" shifting coal production entirely toward coking coal development and transforming coal from a traditional fuel into a chemical raw material. On the one hand, raw coal is upgraded to coking coal with high added value; on the other hand, the value of coal resources is fully exploited to drive the extension of the industrial chain downstream. This allows coal resources to be utilized not only in primary coking products but also in nylon and carbon-based products, and further to develop into high-end products with high added value such as modified engineering plastics, high-purity silanes, and electronic-grade polysilicon. This process facilitates the group’s transformation from a traditional energy and chemical enterprise into a new materials company. ——Using hydrogen, refined benzene, and synthetic ammonia – by-products of coking – as raw materials, a globally unique coal-based nylon chemical industry chain has been established. This enables low-end products such as raw coal to be utilized in the production of high-end equipment such as high-speed rail components and aviation tires, resulting in a increase in the added value of these products by several dozen times. ——Using hydrogen extracted from coke oven gas as the main raw material, high-purity, electronic-grade polysilicon and other high-tech products have been developed. The company has become the second in the world to produce high-purity electronic-grade polysilicon using the silane method, thereby breaking free from the reliance on imported materials for high-end electronic applications. A strategic emerging industrial chain consisting of “silane – monocrystalline silicon, polysilicon – solar cell wafers – photovoltaic power plants” has been established. ——Using coal tar as raw material, significant efforts have been made to develop and produce on a large scale high-end products such as needle coke, large-sized ultra-high power graphite electrodes, and graphite anode materials, resulting in a hundred-fold increase in the value of these resources. After gradually reaping the benefits of increased asset value resulting from the expansion of its industrial chain, Pingmei Shenma Group has gone a step further by focusing on strengthening the interconnectivity within this chain. By relying on system integration and the joint production of multiple projects, it has established industrial parks such as Pingdingshan Nylon Chemicals, Xuchang Silicon-based New Materials, and Kaifeng Fine Chemicals, in order to maximize the value of its resources. “Developed in a park-style format, this approach not only enables the vertical expansion of the coal-based industrial chain and pushes products toward higher stages of the value chain, but also facilitates the interconnected and integrated use of resources on a horizontal scale. It allows multiple industrial chains to operate in synergy, leading to increased value creation and sustainable economic development. Furthermore, by planning the industrial layout in a centralized manner, it is possible to expand the scale of these industries. ”said Li Mao, Party secretary and chairman of the group. Building on its current industrial foundation, the group has partnered with Pingdingshan to improve the nylon industry chain by investing in the upstream sector, taking stakes in the midstream segment, and driving development in the downstream area; this effort aims to accelerate the construction of a \"Nylon City\" in China. At present, Pingdingshan’s cluster of new functional materials, with nylon-based products as its core, has been included in the **Strategic Emerging Industries Cluster Development Program**. At the same time, together with Xuchang City and Henan Investment Group, they are building a silicon-carbon advanced materials industrial park worth hundreds of billions, relying on the silicon-carbon new materials park. It is understood that China Nylon City is less than 15 kilometers away in a straight line from the Silicon-Carbon Advanced Materials Industrial Park. The Xu Pingnan Highway and the railway operated by the mining area run through this area, and it benefits from high-quality coking coal from the Pingdingshan mining area as well as an adequate supply of electricity. In particular, the coal coke, hydrogen, ammonia, benzene, and coke oven gas resources from the Silicon Carbon Advanced Materials Industrial Park are transported directly via pipelines to China Nylon City; the industrial chain cluster in this park possesses great potential, with significant advantages in terms of coordinated development. As planned, the group will take Xunan Highway as its central axis, with China Nylon City and the Silicon-Carbon Advanced Materials Industrial Park serving as the two core areas. Within a region that is 35 kilometers long from north to south and 10 to 15 kilometers wide from east to west, covering an area of about 500 square kilometers, it will develop an industrial corridor for coal-based advanced materials in southwestern Henan. The goal is for the total output value of this industrial park to exceed 200 billion yuan within the next 3 to 5 years; through efforts over about 10 years, this figure is expected to reach 300 to 500 billion yuan, thus creating a regionally distinctive economic belt that connects the cities of Zhengzhou, Xuchang, Pingdingshan, and Nanyang. By promoting the development of industrial parks, the group has initially established the framework for an industrial corridor for coal-based advanced materials in southwestern Henan. More than 30 billion yuan has been invested to date, with 28 projects brought online; the total industrial output value amounts to 28 billion yuan. Within five years, 120 more projects are planned, with a total investment of 80 billion yuan, thereby generating significant economic, ecological, and social benefits. It is reported that as the industrial chain in the park expands and a large number of new projects are launched, the group will provide employment for many coal mine workers who need to change jobs, as well as for people from surrounding counties and districts. Furthermore, the development of the coal-based advanced materials industry corridor in southwestern Henan can effectively drive the coordinated development of a large number of supporting small and medium-sized enterprises, as well as specialty agriculture and multi-level aquaculture, thereby promoting the economic development of surrounding counties and rural revitalization. Capital securitization facilitates overall listing and contributes to industrial optimization. Moving from a situation dominated by coal production to one with three competing sectors, on the path of transformation and development, Pingmei Shenma Group relies on its three listed companies to support its three core industries. As an important capital platform for the development of the coal industry, Pingmei Co., Ltd. provides sufficient resources such as raw materials and energy to expand and extend the coal-based industrial chain. At present, the company is actively pursuing a path of \"intelligent transformation\" for the coal industry. It plans to achieve comprehensive automation and informatization in 18 pairs of mines by the end of 2021, and to build 4 new smart mines, thereby bringing the level of intelligence in coal mining operations to among the highest in the country. As a platform for the development of the nylon chemicals industry, Shenma Co., Ltd. is primarily responsible for expanding the coal-based nylon chemicals industry chain. It is the largest producer of nylon chemicals in Asia, with the world’s highest production capacity for industrial fibers and cord fabrics, as well as the highest production capacity in Asia for nylon 66 salts and engineering plastics. As an important capital platform in the new energy and new materials sector, Yicheng New Energy is primarily involved in the development of coal-based silicon materials and the expansion of the carbon materials industry chain. It has the largest production capacity for ultra-high power graphite electrodes in China, and its high-efficiency monocrystalline silicon solar cells achieve a photovoltaic conversion efficiency of 23%, which is at the world’s leading level. In recent years, the group has focused on leveraging capital as a catalyst for the corporate transformation and development, shifting from relying solely on operational activities to a model driven by both operations and capital. It has continued to push eligible companies to go public on the main board, GEM board, and New Third Board of the A-share market. Furthermore, by leveraging the unique advantages of listed companies, accelerating the strategic restructuring of relevant enterprises, and continuously pushing high-quality assets from key industries to go public, it further promotes structural adjustment and helps with industrial upgrading, thus laying a solid foundation for high-quality transformation and development. In November 2006, Pingmei Co., Ltd. was listed on the Shanghai Stock Exchange. In the year of its listing, it set records for fundraising through initial public offerings in both the coal industry and Henan Province, becoming the company with the highest market value in the province at that time. After going public, the company reorganized the coal-related business assets of the group, such as Tiantong Power and coal washing plants, to further optimize its industrial structure. Currently, the total share capital of Pingmei Co., Ltd. is 2.33 billion shares, of which the group holds 1.314 billion shares, accounting for 56.47%. In January 1994, Shenma Shares was listed on the Shanghai Stock Exchange, becoming the first company from Henan Province to be listed as an A-share on that exchange. Currently, Shenma Co., Ltd. has a total share capital of 570 million shares, of which the group holds 280 million shares, accounting for 49.28%. The company is currently advancing steadily with the process of acquiring Henan Shenma Nylon Chemical Co., Ltd. In 2013, Pingmei Shenma Group set a successful precedent in China for reverse acquisition of a GEM-listed company by injecting high-quality assets into the listed firm Xinda New Materials. In 2019, Yicheng New Energy acquired 100% of the equity in Kaifeng Carbon by issuing shares, thereby successfully restructuring Kaifeng Carbon. This is the first high-tech enterprise to undergo a restructuring and re-listing on the GEM board following the reforms to the CSRC’s regulations on major asset restructuring. Li Mao said that this merger not only enabled the securitization of Kaifeng Carbon’s assets but also expanded Yicheng New Energy’s core business from the photovoltaic industry to power graphite electrodes, further strengthening the group’s development platform for new energy and new materials. This led to a more seamless integration of the coal-based carbon materials and silicon materials supply chains, as well as broader prospects for development. It is understood that at present, Yicheng New Energy has developed a new materials segment centered on functional carbon materials, as well as a new energy segment focused on high-efficiency monocrystalline silicon solar cells. The company’s total share capital is 2.02 billion shares, of which the group holds 978 million shares, accounting for 48.31%. Currently, the company is accelerating the process of acquiring a 30% stake in Pingmei Longi held by Henan Pingmei Shenma Shoushan Chemical Technology Co., Ltd. through the issuance of shares, as well as raising the necessary funds for this purpose. In the future, it plans to incorporate more than 20 projects into the listed company, including a 30GW photovoltaic super factory, 300,000 tons of photovoltaic module materials, 100,000 tons of electron-grade high-purity reagents and zone-melted polysilicon, as well as 60,000 tons of graphite anode materials, all part of the planned silicon-carbon advanced materials industrial park with a value of hundreds of billions. The goal is to make the revenue generated from new energy and new materials account for half of the group’s total revenue. To date, the group’s asset securitization rate stands at 40.2%, placing it among the top among enterprises under provincial management in terms of asset securitization levels. Next, the group will use the coal-based industrial chain as a link and the three listed companies on the main board as platforms to acquire high-quality assets related to coal coking, nylon chemicals, and new energy materials in a timely manner, through means such as setting up industrial funds or conducting private placements. The goal is to achieve overall listing of these three core industries, thereby enhancing the connectivity and coordination throughout the industrial chain, as well as strengthening the ties between the three listed companies, improving their cooperation, and fostering more efficient development. At the same time, the group is also constantly fostering new companies to go public, aiming to help technology companies list on the Sci-Tech Innovation Board or the GEM board by 2021. Silane Technology Company and Shenma Huawei Company have successfully been listed on the Select Layer of the New Third Board, thereby providing the group with new platforms for listing in areas such as technological innovation and accelerating the process of capitalizing the group’s assets and securitizing its capital. High-quality development through marketization of the system relies on reform for momentum. Pingmei Shenma Group, which boasts excellent resource endowments and a well-developed industrialization framework, also faces the common challenges of traditional state-owned enterprises: complex organizational structures, excessive redundant staff, and difficulties in achieving satisfactory performance. In its ongoing pursuit of industrial transformation, Pingmei Shenma Group adheres to market-oriented principles, focusing on making fundamental changes, breaking down existing constraints, and establishing new systems. It deepens reforms in state-owned enterprises in all aspects, thereby contributing to the strengthening, optimization, and expansion of state capital. As early as 2004, Pingmei Shenma Group was the first in China to develop a mixed-ownership economy through measures such as restructuring and listing, attracting investment, and employee stock ownership, thereby facilitating the organic integration of the resource and management advantages of state-owned enterprises with the operational advantages of private enterprises. In recent years, the group has further accelerated its pace of mixed-ownership reform, implementing 14 measures such as optimizing the equity structure, standardizing loan guarantee practices, and exploring options like preferred shares and fixed returns. As a result, it has created a number of model enterprises that can be replicated and replicated elsewhere, and its experiences have been included in the State Council’s \"textbook on mixed-ownership reform\". To date, the group’s holding of mixed-ownership enterprises accounts for over 70% of all its subsidiaries, with these enterprises contributing nearly 90% of the group’s revenue and profits. To address the problem of inefficient corporate performance resulting from an overly large workforce, the group formulated a \"Ten-Year Human Resources Plan.\" This plan involves reassigning tens of thousands of miners to other roles, facilitating a strategic shift of coal industry workers to industries other than coal mining, and implementing intelligent human resources management systems. Efforts are also being made to eliminate those who have not been working for long periods. The goal is, through 10 years of effort, to reduce the number of coal industry workers to less than 40,000, thereby significantly improving productivity per worker. It is understood that since last year, the group has reduced its workforce by 13,000 employees in total. The group also recruits senior corporate managers through open recruitment processes, introduces six types of medium- to long-term incentive measures such as equity incentives, and was the first in the province to implement a project co-investment mechanism, thereby greatly boosting the enthusiasm of employees at all levels, from management to frontline staff. In addition, the group firmly implemented the central government’s directives on supply-side reform as well as the province’s three-year plan for reforming state-owned enterprises. It shut down 13 pairs of state-owned coal mines, persuaded nearly 120 small coal mines to cease operations and undergo restructuring, eliminated over 24 million tons of outdated coal production capacity, and arranged for the reassignment of 37,000 coal mine workers. It successfully completed the task of separating and transferring those employees who worked in enterprises related to utilities and services, as well as retirees – accounting for one-third of the total number of enterprises in the province. This year, the group has intensified its reform efforts, planning to implement four initiatives: advancing its core businesses to lead the industry, fostering independent development of its auxiliary businesses, helping struggling companies overcome difficulties, and optimizing its asset structure – all aimed at laying a solid foundation for the high-quality transformation and development of the enterprise. In terms of optimizing the asset structure, specific plans have been formulated to activate existing assets, improve the asset structure, and enhance asset quality; capital operations have been strengthened, and efforts have been intensified to streamline and integrate inefficient assets. It is expected that over 1.5 billion yuan worth of idle assets will be activated throughout the year, thereby significantly reducing the group’s debt-to-asset ratio. At the same time, relying on three listed companies as their core, these three key industries strive to ensure that Pingmei Co., Ltd. ranks among the top 10 in the industry in terms of net profit and earnings per share; Shenma Co., Ltd. achieves leadership in efficiency and performance at the national level; and Yicheng New Energy maintains the highest rates of sales profit margin and market share in the country, with further increases in profits. “We firmly refuse to follow the old path of competing on scale, cost, and homogenization; instead, we will shift our focus to improving quality, enhancing standards, and building strong brands. ”Li Mao said that through efforts over the next 3 to 5 years, the goal is to achieve operating revenues of over 200 billion yuan and profits of over 10 billion yuan. Revenues from strategic emerging industries such as new energy and new materials are expected to account for 70% of the group’s total revenue, enabling a transformation from a traditional energy and chemical enterprise into one focused on new materials, with the aim of establishing a world-class energy and chemical group with international competitiveness. At the same time, it boasts greater overall strength, has made it into the Fortune Global 500, and is actively planning for the group’s overall listing in order to achieve a fundamental shift from quantitative expansion to qualitative improvement, from simply growing in size to becoming truly strong.